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Testamentary trusts…the devil is in the details!
March 15, 2023 / Insight from Jane Alm, Senior Wealth Advisor
When working with clients on their financial planning, questions often arise about how they can control gifts to specific beneficiaries after they die. One route may be to include a testamentary trust in their will. A testamentary trust provides a way that your Executor and Trust can control how, and when, beneficiaries receive benefits from your estate.
Once this trust is established, it allows the Executor and Trustee to
control the distribution under certain conditions or parameters. For
example, at a certain age/ages; for certain costs and expenses (for
minor beneficiaries); or for controlling how much is distributed at a
time for spendthrift beneficiaries.
As with all trusts, a testamentary trust has three parties: the settlor (the deceased), the trustee (commonly the Executor and Trustee who manage the assets held in the trust), and the beneficiaries (who receive the benefit).
It is especially useful in the following situations:
- Your beneficiaries are unable to manage the inheritance due to personal circumstances;
- Your beneficiaries are minors;
- Your beneficiaries have significant debts; or
- You are in a blended family and want to ensure that some of your assets are transferred to the children from a previous relationship.
Your will establishes the terms of a testamentary trust, but it is not settled until assets have transferred into the trust after you have passed away. As with any estate document, a testamentary trust in your Will can be modified while you are still alive (provided you have the mental capacity) to adapt to changing situations.
While you can appoint a separate Trustee, most often your Executor acts as the Executor by calling in assets, and as Trustee by managing the assets. Choosing your trustee is an important part of this preparation. Your trustee should be someone that you trust. It can be a person or persons, or a trust company (corporate executor and trustee) such as National Bank Trust.
Legal counsel prepares your will, but your wealth advisor and financial planner should always be included in the process to ensure your financial plan is aligned with the objectives contained in your Will.
When it comes to estate planning, every situation is different. Should you determine that a testamentary trust is right for you, ensure it is properly drafted in your Will and kept up to date.
