A testamentary trust is a trust that takes effect upon the testator’s death, often created for minor children or young adults. It involves appointing a trustee to handle funds until a certain point when the trust expires. While it can be costly due to legal fees, it may be beneficial for those with high life insurance payouts and little money available. It is important to choose a trustworthy manager and clarify wishes in a will.
A testamentary trust is a type of trust that takes effect when the testator dies. This type of trust is often created for minor children or young adults so that money, such as life insurance funds, is distributed to them when a parent dies. Typically it is part of the will of the testator. A testamentary trust involves appointing a trustee to handle the trust funds until a certain point when the trust expires, such as when the child finishes college or turns 25. The initial cost of setting up a living trust is usually very low.
often expensive option
Depending on the number of years the trustee must act for a living trust, he or she will need to go to probate court and have the trust examined regularly. For this reason, testamentary trusts may end up costing more in legal fees than revocable living wills would. If a trustee needs frequent legal advice on how to administer the trust, this can mean a significant amount of legal fees over time, which is usually deducted from the trust amount.
These costs are the reason many attorneys advise people to create revocable living wills instead of testamentary trusts. On the other hand, if both parents or a single parent have a very high life insurance payout and little money available, a testamentary trust could be beneficial. It may be the only method by which some people can dictate some terms to support their children if they die suddenly.
find an administrator
Creating a testamentary trust also means that one person must act as trustee until the trust ends. Such a person may be named in a will, but some will not take office as it can take a long time. In the event that an administrator is not appointed, one may be appointed by the court, or an adult friend or relative of the testator could volunteer to act as administrator. It is advisable for someone who wants to create a living trust to talk with friends and family about who will act as guardian and administrator in the event of her death.
Before the children have a full disbursement from the trust funds, the money is handled by the designated trustee, and this work is overseen by the probate courts. This should ensure that money matters are handled properly, but it is recommended to choose a trustworthy manager. Once the trustee is given responsibility for the money, control and the degree to which it can be spent on the care of the child or children may not be sufficiently controlled by a very brief or unspecified will. A will might clarify a person’s wishes regarding the use of money, but the trustee, if the court agrees, does not necessarily have to follow these wishes.
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