You Can Have the Best of Both Worlds With Testamentary Trusts
There are various avenues to consider when crafting an estate plan. Some favor the flexibility offered by a revocable living trust, while others contend that a last will and testament (commonly referred to as a will) is more suitable. For those seeking a balanced approach, a combination of both, facilitated by a testamentary trust, is a great option. Testamentary trusts offer a nuanced blend of control and protection for individuals and their families.
What Are Testamentary Trusts?
Unlike a revocable living trust established during one’s lifetime, a testamentary trust is formed as part of the individual’s will and only becomes active after they pass away. It allows you to pre-determine how your money and property will be managed. The testamentary trust addresses various concerns, such as financial support for specific family members, ensuring the well-being of dependents, or managing assets for a minor until they reach a certain age. This type of trust is subject to probate.
A Testamentary Trust Can Protect Your Loved Ones
In certain situations, a testamentary trust can offer additional protection for your loved ones.
Surviving Spouse
Some couples may be cautious about leaving their entire estate to the surviving spouse due to concerns about potential exploitation, remarriage, or the risk of losing the inherited money and property. A testamentary trust provides a solution by enabling the surviving spouse to access the assets while incorporating additional safeguards.
Minor Child
In most jurisdictions, minors lack the legal capacity to own assets. If a minor inherits funds and property, the court might appoint someone to oversee the inheritance and ensure its proper utilization. Opting for a testamentary trust empowers you to designate a person to manage the inheritance.
Special Needs Family Member
If a family member receives specific government benefits related to a disability, an inadequately planned inheritance may jeopardize their eligibility to receive this assistance. On the other hand, a well-constructed testamentary trust can offer financial support to your loved one, supplementing their government benefits without putting their eligibility at risk.
A Testamentary Trust Goes Through Probate
Unlike a revocable living trust, a testamentary trust comes into existence during the probate process. Although it manages and distributes money and property to loved ones, the probate court must be involved. The executor handles the transfer of ownership for your accounts and property from you to the testamentary trust’s trustee. After this transfer, the trustee will then follow the instructions outlined in the will to manage the trust for the specified period. Once the beneficiaries receive the inheritance, the trust terminates.
The probate process can be costly and time-consuming. However, it may be the right option in some circumstances. Some find it provides stability a nd harmony by allowing the court to supervise the process. Further, it may help families remain cordial in a respectful atmosphere.
Other Important Documents
Alongside a testamentary trust, additional crucial estate planning tools are necessary to fully protect yourself and your loved ones. Since a will addresses the distribution of your assets after your passing, it is imperative to plan for situations where you are alive but unable to make decisions due to incapacity.
Financial Power of Attorney
A financial power of attorney is a legal document granting someone the authority to make financial decisions on your behalf if you cannot do so. The person appointed, known as the agent or attorney-in-fact, can manage your finances, pay bills, and handle other monetary matters according to the powers specified in the document.
Medical Power of Attorney
A medical power of attorney allows you to appoint a trusted person as a decision-maker to communicate on your behalf or make healthcare decisions for you without court involvement.
Advance Directive or Living Will
An advance directive or living will explain your preferences for end-of-life decisions to guide your medical power of attorney.
HIPAA Authorization
A Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorization form allows you to grant specific individuals access to your confidential information. For example, they could receive a status update on your condition.
Nomination of Guardian
Certain states offer a distinct document for nominating a guardian for minors. This document allows for changing guardians without updating the entire will. You can reference this document in your will, ensuring its recognition during the probate process.
Temporary Guardianship
In some states, a separate document enables you to appoint someone to make decisions for your minor child in your absence due to incapacity or travel. It’s crucial to understand that this document has a limited duration (usually six months to a year).
Choose the Right Option for You and Your Loved Ones
There are numerous options to consider when estate planning. We are dedicated to formulating a comprehensive strategy that safeguards you, your loved ones, and your legacy. If you wish to explore testamentary trusts or review your current estate plan, contact us to schedule your complimentary consultation.