Testamentary Trusts: Protect Your Legacy and Your Heirs
September 28, 2017   /   Estate Planning   /   Posted By Shifman & Carlson

In discussing estate plans, many people face the question of how to provide for their children or grandchildren. Most people anticipate that by the time they will die, their children will be mature adults who will know how to manage any inheritance they receive. Sadly, however, many children lose their parents when they are too young to have the necessary money management skills to make advantageous use of their inheritance, or bequests may be directed to grandchildren, not all of whom are prepared to manage significant amounts of money.

Imagine the following scenario: you and your spouse have unexpectedly passed away, and your child has recently turned 18. Your child has just graduated high school and is packing up to move to college, having just inherited more money than he or she has ever had in his or her life. Will your child save and manage the money properly? Our experience indicates that results may vary.

While you may have made provisions in your will to ensure who will receive your estate, you may not have made sufficient restrictions on how they will receive it. Typically, when a minor receives an inheritance, those funds are managed by a conservator or other responsible party (often a parent). However, a child becomes an adult in Michigan the minute they turn 18, and absent proper estate planning, is immediately entitled to receive their full inheritance without restrictions as soon as they reach that age.

Fortunately, there are estate planning techniques to ensure that a child does not burn through his or her inheritance all at once. One of the most effective tools is known as a testamentary trust. A testamentary trust is simply a “trust” that is contained in your will, which becomes effective upon your death if circumstances call for it, that is, if a person below a specified age receives a bequest. The personal representative of your estate establishes the testamentary trust with your funds and a trustee that you designate manages the funds for the benefit of the child, per your instructions. For instance, you could provide that your trustee may only pay for the child’s health, support, education and maintenance until he or she reaches a certain age or achieves a milestone such as graduating from college. You could also provide for the trustee to pay for the support and care of the child, but give the trustee the ultimate discretion to decide when the child is mature enough to receive the full inheritance.

Testamentary trusts are cost effective when compared to other alternatives and can easily be included in a will. If you otherwise have a simple estate plan but want to place some restrictions on how and when your children or grandchildren receive their inheritance, a testamentary trust can be an excellent choice.

Contact our firm to talk about how we can help with your estate planning needs.

Contact Our Farmington Hills Attorney at Shifman & Carlson, P.C. Today!