One of the best ways to help ensure stability for your family is to plan for the future. An essential component of that plan is a solid estate plan.
Estate plans can help you distribute your assets, arrange for important healthcare decisions, and even nominate a person to care for your child in the event of your death. Estate plans may contain a wide variety of different instruments, all depending on the goals of the family. One technique often employed by Minnesota estate planning attorneys is a testamentary trust.
The Basics of a Trust
When creating a trust, the person providing the assets and creating the trust is called the “settlor.” The settlor transfers assets into a trust.
The trust is then administered by the trustee according to the provisions in the trust documents that were drafted when the trust was first established. The person who receives distributions from the trust is called the beneficiary.
There are many different types of trusts, and many are established during the lifetime of the settlor. This is not the case, however, with a testamentary trust.
What Is a Testamentary Trust?
A testamentary trust is funded with assets from the settlor’s estate. After the settlor’s death, designated assets are transferred into the trust. The trust is then administered for the benefit of the beneficiary named by the settlor.
How Is a Testamentary Trust Different from a Living Trust?
Unlike most other trusts, a testamentary trust is established within the last will and treatment. In other words, there is not a separate set of trust documents.
Are Testamentary Trusts Irrevocable?
Testamentary trusts are revocable during the live of the settlor, because they do not go into effect until the settlor's passing. Upon the settlor's death, a testamentary trust goes into effect and becomes irrevocable.
What Are the Advantages of a Testamentary Trust?
A testamentary trust is a common tool employed by parents of minor children. Minnesota law provides that a child cannot directly inherit the assets from the estate of a deceased parent. As a result, a trust will need to be established.
By establishing a testamentary trust, you can specify which assets are to be transferred into the trust.
Moreover, you can specifically name the trustee. The trustee has control over the assets in the account and is responsible for making distributions according to your instructions. Accordingly, it is very important that you choose an appropriate person to fill this role, especially if the trust is to be established for young children.
It is important to note that a testamentary trust does not come into being until the death of the settlor. In other words, the assets remain the property of the settlor, which can have significant tax implications. Moreover, the settlor can change his or her mind at any time and revise the will to remove the testamentary trust.
We have extensive experience assisting our clients with selecting the right estate planning instrument to meet their needs. Call us today at 651-371-9117 to talk about your case and your goals.