About Testamentary Trusts
Married couples must consider many important things once they begin having children--perhaps none as important as their Last Will and Testament. If you're a young parent, how can you and your spouse safeguard your children's assets and continue to provide for them in the event of your premature death? Unfortunately, due to the complexity of this issue, many parents don't address it at all. With the help of an attorney or financial advisor, however, you can easily set up a trust to secure your children's financial future.
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Features
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A trust is money or property that you as the grantor give to a trustee--usually a lawyer, financial advisor, family member or close friend--to manage for a beneficiary. The beneficiary receives the trust paid out over a pre-determined length of time until the trust expires. Upon termination of the trust, the beneficiary receives the remainder of the funds. A testamentary trust is one created within the parameters of a will, and it is withheld until the grantor's death.
Function
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In the event both parents die, testamentary trusts serve to help manage money for a minor beneficiary until he reaches a certain age. They may also be set up for a spouse or another adult who becomes physically or mentally incapable of making sound financial decisions. In either case, it's the trustee, with supervision from a probate court, who determines the circumstances under which the beneficiary uses the money. In essence, testamentary trusts protect the grantor's money from spendthrifts and creditors. A grantor may also set up a testamentary trust and designate a charitable gift for a favorite charity or organization.
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Time Frame
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Testamentary trusts generally specify payments be made to a beneficiary at specified times in his life. For example, the beneficiary may receive a portion of the grantor's assets, perhaps from a life insurance settlement, at age 21, 25 and the remaining balance at age 30.
Benefits
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In the event both parents die prematurely, testamentary trusts can give them protection of their minor children's assets. Likewise, attorneys can often draft one document to cover both a will and a testamentary trust, which saves the couple on expensive legal fees. Testamentary trusts also provide tax breaks, because they allow you to split your assets among your beneficiaries.
Considerations
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Because of the complex nature of trusts, you should seek expert consultation from a lawyer or financial advisor to help you go over all of your options. Likewise, give careful consideration to the person you name as trustee of your testamentary trust. This person will ultimately be responsible for your assets with relation to accounting, tax preparation, investing and distribution of assets. You can also designate an institution as trustee if there is no one you can name to handle your finances once you pass on.
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