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How do families use a testamentary trust?

| Aug 27, 2020 | Estate planning |

Like other parents with young children, you may worry what will happen if you and your spouse die unexpectedly. At the moment, your children may be too young to handle coming into wealth and property. This problem is why some young families set up a testamentary trust as part of their estate plan. 

A lot of families leave their assets to their children in a will, but you may want your children to wait to inherit your property until they are old enough. According to U.S. News and World Report, a family may use a testamentary trust to hold an inheritance for children until they come of age. 

Setting up a testamentary trust 

A testamentary trust does not go into effect during your lifetime. Instead, you designate property and money to go into a trust after your death. This will only happen if circumstances still meet the terms of your trust. For instance, your trust may go into effect if your children are still minors upon your death. If they are of legal age, they might instead receive your assets directly through your will. 

Holding assets for your children 

Usually, families will set up a testamentary trust so that a guardian, known as a trustee, will oversee the assets and property contained in the trust until their children reach a certain age, generally when they turn 18. Still, some parents delay the inheritance until the children are older, perhaps in their twenties. When the children reach the age required by the trust, the trustee will disperse the assets to them. 

Staggering payouts to children 

Some young adults do not handle coming into sudden wealth very well. They might waste it on a rash of sudden expenses. If you do not want to leave your children with a lot of money at one time, you can stagger payouts with your testamentary trust. You could leave part of an inheritance when a child turns 18, and then another amount later at 25, with additional intervals if you desire. 

Staggering an inheritance in this way may help protect your children from poor spending decisions. As your children grow older, their additional life experience may motivate them to spend their money more wisely when your trust pays out to them at the next interval.