Do You Need a Testamentary Trust?

By Lane V. Erickson, Idaho Estate Planning Attorney

Our number one goal as Idaho’s premier estate planning firm is to accomplish exactly what our clients want to do. In other words, we do not use a cookie cutter approach when it comes to creating a written estate plan for our clients. Rather, we work with each our clients individually to determine exactly what their specific needs are, and once we know what they are, we then provide options to our clients to choose from. Most importantly, we can describe to our clients the many different ways that their estate planning can protect them while they are alive and provide for their loved ones and family members after they are gone.

The attorneys on the Racine Olson team have assisted clients in completing their customized Idaho estate plans for more than 70 years. Our team is made up of partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley. Each of our attorneys are experienced and have earned the highest rankings possible on Martindale-Hubbell, Justia, and AVVO, which are all legal reporting services that provide details on the skills and abilities of attorneys. We provide this information simply to let you know that we are both qualified and able to help you with all of your estate planning needs.

In discussing customized estate plans with our clients we often talked with them about testamentary trusts. A testamentary trust is a trust that is most often created through a person’s last will and testament. In other words, the trust itself is not actually formed, or funded, until after your death. It’s through your last will and testament that your money, property, or other assets would be transferred into the trust as it is created through the specific terms, instructions, and conditions, left in your last will and testament.

There are many good reasons why an individual may want to use a testamentary trust as part of their estate plan. Some of the most basic reasons are that you may have named a beneficiary in your last will and testament who is a minor which means they are under the age of 18. Additionally, you may have named a beneficiary who is suffering from some sort of addiction to substances. Furthermore, you may have named a beneficiary who has disabilities or handicaps. The purpose of this article is to describe these specific situations and to help you understand how utilizing a testamentary trust could be helpful for you in your Idaho estate plan.

The first reason that you may want to use a testamentary trust in your last will and testament is if you are naming a beneficiary who is under the age of 18. This could be a child or a grandchild or really any person who is not yet considered a legal adult. Additionally, many times parents and grandparents recognize that even though a person may be an adult, which means they are 18 or older, they may not yet have the experience or the maturity to be able to handle a substantial inheritance. As a result, a testamentary trust is often used as a way to safeguard and hold a person’s inheritance safe for them until they reach an age where they would be capable of handling the inheritance themselves.

Through a testamentary trust, the person who creates the last will and testament is in complete control of the ages or circumstances under which an inheritance would be delivered directly to a beneficiary. In the meantime, the testamentary trust often has language in it that allows the inheritance to be used to help the individual with their education, maintenance, health, or support. In other words, the trustee can use these things for the beneficiary without giving the money directly to the beneficiary.

For example, if you have a child who wants to go to college, the trustee can pay tuition directly to the college. Additionally the trustee could pay for the beneficiary’s room and board, and also for their books or other supplies. This gives the beneficiary the ability to get the benefit of the trust without having the trust funds given directly to them.

Many parents and grandparents use a testamentary trust to safeguard an inheritance until the child/grandchild is of an age where they would be capable of handling the inheritance themselves. Oftentimes the ages at which a distribution would be made from a trust directly to the beneficiary are staggered. For example, it’s common for parents or grandparents to say that the trust will be distributed in one-thirds at the ages of 25, 30, and 35.

Additionally, you may use a testamentary trust as a way of motivating a child or grandchild to accomplish some specific thing. For instance, sometimes parents will indicate that a trust will make a distribution directly to the child or grandchild once they can successfully earn a college degree.

In addition to protecting the inheritance of a minor aged beneficiary you may also want to protect the inheritance of a beneficiary who suffers from addictions. As an example, let’s say that you have a child or grandchild who is a drug addict. Most people would agree that it wouldn’t be wise to leave an inheritance to this child where they would receive money, property, or other assets from your estate directly. Rather, in this circumstance it would be wisest to set up a testamentary trust so that this beneficiary’s inheritance can be protected and can also be used to help them.

The types of addictions that many people deal with include drug or substance abuse, alcohol abuse, gambling addictions, and other kinds of addictions as well. Regardless of what type of addiction they may be dealing with, utilizing a testamentary trust is a wise way to protect that individual’s inheritance, and still allow them to receive the benefit of that inheritance without giving it directly to them.

The final main reason that many people utilize a testamentary trust is if they have a child or grandchild who has a disability or handicap. In many instances a person with a disability is receiving benefits from government programs. If an inheritance were left directly to this individual they would likely lose the benefits they are currently receiving. Through a testamentary trust you are able to protect that individual’s inheritance and use it as a way to supplement the benefits that this child or grandchild is receiving without jeopardizing those benefits.

As you can see, there are many circumstances where utilizing a testamentary trust as part of your customized Idaho estate plan would be a wise thing to do. Not every person’s circumstance is exactly the same. For this reason, we discuss the benefits of a testamentary trust with our clients and give them the opportunity to decide whether their circumstances would merit using a testamentary trust as part of their plan.

If you have questions about how a testamentary trust could help you, we can answer your questions.

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.