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In
the past several newsletters we have presented
information on Obamacare so that you, the
reader, may have a better understanding
of how the new health care plans work and
how to navigate the websites in order to
obtain the best health care insurance for
you and your family. As that dust has settled,
for this Summer Newsletter, we are going
to present information of a different sort.
In the future, we will present all relevant
updated information on Obamacare, as it
becomes available.
Introduction – Testamentary Trusts
In the past, we have discussed why one
needs a will and why some people prefer
to set up trusts during their lifetimes;
the idea being that the trust can provide
for the use and distribution of assets during
one’s life, and, also, provide for
the contingencies of a person’s death,
so as to obviate the need for probate of
a will. Some think that is perfect for them,
but others do not like the idea of transferring
assets to a trustee during their lifetime.
That surrender of control does not appeal
to some. In addition, when creating lifetime
trusts, there also can be income tax ramifications,
which can be expensive, depending upon the
type and amount of assets
For those reasons, many people prefer estate
plans that are based upon a Last Will and
Testament. Of course, a will which disposes
of assets by direct transfer to beneficiaries
may be inappropriate for some people or
their families. In a case of that sort,
a will should be prepared with the appropriate
testamentary trust to comport with the family’s
requirements. Rather than taking effect
during one’s life, a testamentary
trust takes effect upon his death.
Testamentary Trust Provision Requirements
If you decide that you would prefer
to transfer property not to a beneficiary
outright, but for the benefit of a beneficiary
in trust, then your will must include language
which provides for the appointment of a
trustee to receive and manage the property
in trust, and which sets forth the purpose
of the trust. Many people appoint the executor
of a will to serve as trustee as well, but
that is not a requirement. Sometimes it
is better to select an entirely different
person, depending upon the purpose and expected
lifetime of the trust.
Types of Testamentary Trusts
Supplemental Needs Trusts for
the benefit of disabled children or grandchildren
-This is a wonderful solution to
the difficulty that many parents and grandparents
of disabled children face. Supplemental
Needs Trust provisions in a will allow parents
to direct a legacy for the benefit of a
certified-disabled child without causing
an interruption in government benefits.
Essentially, parents can remember all of
their children, equally, in their estate
plans, regardless of special needs.
Credit Shelter (Disclaimer) Trusts
-These trust provisions preserve both the
husband’s and wife’s estate
tax credit. When the first spouse dies,
the credit of the first spouse to die is
preserved, in trust, for the benefit of
the children, income to the surviving spouse
during the surviving spouse’s life.
When the second spouse dies, the children
receive the benefit of both credits, that
of both deceased parents. Without this device,
the first credit would be lost completely
to the children.
Charitable Trusts -Testamentary
charitable trusts come in two types: the
Charitable Remainder Trust or Charitable
Lead Trust. The idea of helping others while
helping oneself appeals to many. Gifting
to charity by way of one of these trusts
results in estate tax deductions. The trusts
work in this way: the "lead" trust, wherein
the charity is paid first, and the remainder,
after trust termination, goes to beneficiaries,
or the “remainder” trust wherein
the charity is paid last after termination
of the trust, after other beneficiaries
have received payments.
Of course, a parent can include trust provisions
that protect her minor children, or an individual
can provide that income beneficiaries receive
monies from rent producing real property,
in trust. The above are just some examples;
actually, trust provisions can be designed
for any legal purpose, and should be considered
for many estate plans. While the foregoing
is just a very basic introduction, we hope
that we have given you some ideas of what
type of testamentary trusts can be included
in your will. Contact your estate planning
attorney for further information.
The above
list is for general information purposes
only. It is not intended to constitute individual
legal advice or a specific recommendation
to any particular client.
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