When you are planning your estate, you may have heard of a testamentary trust, but what exactly is it? Essentially, a testamentary trust is a type of trust created in a person’s will that governs how their property is distributed after they pass away. While this seems like a straightforward concept, there are several important factors that you should understand if you are considering setting up a testamentary trust. In this article, we will take a closer look at what a testamentary trust is, why you might need one, and how you can create one.
How does a testamentary trust work?
Testamentary trusts are created after the will-maker has passed away and include three main entities; the will-maker, the trustee, and the beneficiary. The will-maker creates the trust through their will, and the trustee is responsible for managing the property held in trust for the beneficiary. The beneficiary, in turn, receives the benefits of the property that is held in trust. The property is held in trust until the specified time in the will when the trustee can distribute it.
What are the benefits of a testamentary trust?
Having a testamentary trust can provide several benefits to you and your beneficiaries. One of the main benefits of a testamentary trust is that it allows you to control how and when your estate is distributed, even after you pass away. This control means that you can ensure that your beneficiaries receive the greatest benefit from the assets that you leave to them. Additionally, a testamentary trust can help protect your beneficiaries’ assets from unforeseen circumstances such as bankruptcy, lawsuits, or creditor claims.
Who should be involved in creating a testamentary trust?
Creating a testamentary trust can be a complex process that requires the assistance of an experienced lawyer. When setting up your testamentary trust, it is important to choose a trustworthy trustee who you believe will be able to manage your estate according to your wishes. This trustee can be the same person as your executor or a different person entirely. Additionally, it is essential to choose the right beneficiaries for your testamentary trust. Make sure that you consider factors such as age, financial stability, and ability to manage assets before selecting who will receive your estate.
What are the different types of testamentary trusts?
There are several types of testamentary trusts that you can choose from, depending on your specific needs and goals. One popular type of testamentary trust is the discretionary trust, which allows the trustee to decide how much and when beneficiaries receive payments from the trust. Other types of testamentary trusts include the life interest trust, which provides income to a beneficiary for their life, and the protective trust, which is designed to protect vulnerable beneficiaries, such as minors or individuals with disabilities.
How can you create a testamentary trust?
Creating a testamentary trust can be a simple process if you have the help of an experienced lawyer who understands the law in your province or territory. You will need to choose your trustee and beneficiaries, decide on the terms of the trust, and include the trust provisions in your will. It is important to update your will and testamentary trust regularly as your circumstances change.
In summary, a testamentary trust can be a useful tool in estate planning. It can help you control how and when your estate is distributed, provide asset protection for your beneficiaries, and ensure that your wishes are carried out after you pass away. However, creating a testamentary trust can be a complicated process that requires careful planning and professional guidance. By working with an experienced lawyer, you can create a testamentary trust that meets your specific needs and provides peace of mind for you and your loved ones.