Testamentary trusts also known as contingent trusts are powerful tools in estate planning. This type of trusts offers individuals the ability to maintain control over their assets after their passing. Often overlooked or misunderstood, testamentary trusts provide a means to distribute assets according to specific wishes, and protect beneficiaries. Most often this type of trust is used by families with minor children or young adults.

What are Testamentary Trusts (a.k.a. Contingent Trusts) ?

A testamentary trust (or contingent trust) is a legal document created within a will. The trust comes into effect upon the death of the testator (the person making the will). Unlike living trusts, which are created during the grantor’s lifetime, testamentary trusts are established through a last will and testament. This trust allows the testator to specify how assets should be managed and distributed after their death.

How They’re Used:

1. Asset Protection: Testamentary trusts are often used to protect assets. Particularly in cases where beneficiaries may be minors, financially irresponsible, or vulnerable to creditors or divorce settlements.
2. Control Over Distribution: By setting up a testamentary trust, the testator can dictate how and when beneficiaries receive their inheritances. This is especially beneficial when beneficiaries are not yet mature enough to handle large sums of money responsibly.

Key Components of Testamentary Trusts:

1. Trustee: The individual or entity appointed to manage the trust and its assets according to the terms outlined in the will.
2. Beneficiaries: Those individuals or entities designated to receive benefits from the trust, which could include family members, charities, or other organizations.
3. Terms and Conditions: The specific instructions governing how the trust should be administered, including distribution schedules, conditions for distribution, and any restrictions on asset usage.

Conclusion:

In summary, testamentary or contingent trusts are valuable tools in estate planning that offer flexibility, control, and protection over assets. Hence, by establishing a testamentary trust, parents of minor children or young adults can ensure that their wishes are carried out, their loved ones are provided for, and their legacy is preserved according to their intentions. Whether it’s protecting assets for future generations, or providing ongoing support for dependents, testamentary trusts offer a range of benefits that make them an essential component of a comprehensive estate plan.