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What's a testamentary trust and how does it help minor children?

Imagine that you want to use a trust as a part of your estate plan in order to protect the inheritances of your minor children. To put it bluntly, you don't want the inheritances of your children to be vulnerable to another family member -- like the guardian of the children -- taking them. Unfortunately, this can happen if both parents die and they leave behind a sizable inheritance for their child. The children's guardian could potentially spend the child's money for the guardian's own benefit.

This will not happen with a testamentary trust. By virtue of the testamentary trust document -- which is written into the will and won't go into effect until you pass away -- the assets contained in the testamentary trust must be managed and cared for in accordance with the instructions in the trust documentation. These instructions, which are carried out by the named "trustee" for the benefit of the beneficiaries, must be strictly followed. Failure to follow the instructions in the trust could result in the financial liability of the trustee.

Here are the people who will be involved in your testamentary trust:

(1) The grantor, or you, the person creating the trust who sets the ground rules for the trustee to manage the trust.

(2) The trustee is the trusted individual who may also be an attorney, banker, accountant or financial advisor. You appoint the trustee to manage the trust assets and distribute them according to the trust instructions.

(3) The beneficiaries are the people whom the trust financially benefits.

A testamentary trust could be an excellent estate planning tool for you and your family depending on your situation and needs. Make sure you explore all the potential estate planning solutions available to you before settling on one that works.

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