Import From Word

Testamentary Trusts: The Best of Both Worlds

You have several different options when it comes to creating the right
estate plan. Some people believe that a revocable living trust is the
best way to go, while others think that a last will and testament
(commonly known as a will) is best under certain circumstances. Others
may find that a combination of both---through the use of a testamentary
trust---provides the right amount of control and protection for
themselves and their loved ones.

A Testamentary Trust Can Provide a Solution

A testamentary trust will own accounts and property owned by you in your
sole name without beneficiary designations, upon your death and enables
you to instruct how your money and property will be handled in advance.
Unlike a revocable living trust, the testamentary trust is created at
your death, and ownership of your accounts and property are transferred
to the trust through the probate process.

You Can Protect Your Loved Ones

Depending on your circumstances, your loved ones may need the extra
protection that a testamentary trust can provide.

• Surviving spouse. Some couples are hesitant to leave everything
  to their surviving spouse out of fear that the surviving spouse
  could be taken advantage of, remarry, or otherwise lose the money
  and property that was left to them. A testamentary trust can allow a
  surviving spouse to access the money and property while including
  extra protections to safeguard it.

• Minor child. In most states, minor children cannot legally own
  anything. If money and property are left to a minor, the court may
  need to appoint someone to manage the inheritance and make sure that
  it is used appropriately. A testamentary trust allows you to select
  the person to manage the inheritance and provide specific
  instructions about how the money and property should be used.

• Special needs individual. If you have a loved one who is
  currently receiving or may need to avail themselves of certain
  government benefits due to a disability, a poorly structured
  inheritance can jeopardize their ability to qualify or keep those
  government benefits that they need to survive. A properly structured
  testamentary trust can provide funds to your loved one to supplement
  what they are receiving from the government without disqualifying
  them from government assistance.

Your Loved Ones Will Still Have to Go Through Probate

Although you are using a trust to manage and distribute money and
property to your loved ones, the probate court will still have to be
involved. As opposed to a revocable living trust that is created during
your lifetime, a testamentary trust comes into existence at your death
during the probate process. The person you name as the executor or
personal representative will oversee changing the ownership of your
accounts and property from you as an individual to the trustee of the
testamentary trust. Once ownership of accounts and property has been
changed, the trustee will manage the trust according to the instructions
in the will for the trust's duration. When all of the accounts and
property have been given to the intended beneficiaries, the trust
terminates. During the administration, the trustee may be required to
provide annual reports to the court and other important parties and may
have to periodically appear before the judge.

Although the probate process can be time-consuming, expensive, and
public, it may be the right option in some circumstances. Some people
find that it provides stability and harmony by allowing a third party
(the probate court) to oversee the process. This can help families who
may otherwise argue over the details to remain cordial and on their best
behavior.

Do Not Forget Other Important Documents

Even if you choose to include a testamentary trust as part of your will,
there are other important estate planning tools you must have to
properly protect yourself and your loved ones. Because a will only
covers what happens to your money and property when you pass away, we
must also plan for a situation in which you are alive but unable to make
your own decisions, which is known as incapacity.

Financial Power of Attorney

A financial power of attorney allows you to choose a trusted person (the
agent) to handle your personal financial matters without court
involvement. The amount of authority your agent has is determined by the
type of financial power of attorney you have prepared. It can be as
limited or as broad as you would like. Another important consideration
when preparing a financial power of attorney is choosing when the agent
can act. One option is to enable the agent to act immediately once you
have signed the document. A second option is to have a springing
financial power of attorney that only becomes effective once it has been
determined that you cannot manage your affairs. It is important to note
that some states do not allow springing powers of attorney.

Medical Power of Attorney

A medical power of attorney allows you to appoint a trusted person as a
decision-maker to communicate on your behalf or make healthcare
decisions for you without court involvement.

Advance Directive or Living Will

An advance directive or living will allows you to convey your wishes
regarding end-of-life decisions, such as how long to continue artificial
hydration and nutrition or how long to continue artificial respiration
when you are in a persistent vegetative state or have a terminal
condition and with no chance of recovery. This document will help the
decision-maker under your medical power of attorney make informed
choices for your care.

HIPAA Authorization

A [Health Insurance Portability and Accountability Act of 1996
(]HIPAA) authorization form allows you to grant specific
individuals access to your confidential and protected information (e.g.,
to get a status update on your condition or receive your test results)
without giving those individuals the authority to make decisions on your
behalf. Providing this information to your loved ones can help all
parties stay on the same page even if only one person is authorized to
make medical decisions on your behalf.

Nomination of Guardian

Some states have a separate document that allows you to nominate a
guardian for your minor child. Some people prefer the separate document
because they can change guardians with ease and without having to update
their entire will or pour-over will. This document can be referenced in
your will so that your nomination will be known during the probate
process.

Temporary Guardianship

Some states allow for a separate document in which to name a person to
make decisions for your minor child when you are unable, such as if you
are incapacitated or traveling without your child and need to give
someone authority to make decisions for your child in your absence. It
is important to note that this document is only effective for a short
period (typically six months to a year), and a temporary guardian cannot
agree to certain actions, such as the child's adoption or marriage.

Let's Choose the Right Option for You and Your Loved Ones

There are many different options when it comes to crafting a plan that
is right for you. We are committed to developing a plan that protects
you, your loved ones, and your legacy. If you are interested in learning
more about testamentary trusts or reviewing your existing estate plan,
please give us a call.