At Zapolis & Associates, PC, we help many Illinois people with their estate planning needs. Usually, depending on what they wish to accomplish, they begin with a last will and testament, followed by one or more revocable or irrevocable trusts. But for some of our clients, creating separate trusts is not absolutely vital. Instead, they can set up one or more testamentary trusts as part of their will.
A testamentary trust is similar to, but different than, a living trust. During your lifetime you can change or revoke either type of trust whenever you wish to do so after setting it up. The difference is when these trusts take effect. SmartAsset.com explains that whereas your living trusts take effect as soon as you establish them, your testamentary trust(s) take effect upon your death.
Parties to a testamentary trust
All testamentary trusts involve the following four parties:
- The grantor; i.e., you
- The beneficiary; i.e., the person you name in the trust portion of your will who ultimately will receive the trust's assets
- The trustee; i.e., the person or entity you name in the trust portion of your will who will manage the trust and its assets until such time as (s)he distributes the assets to your designated beneficiary per your will's instructions
- The probate court that oversees all estates that go through probate
Bear in mind that you can set up as many testamentary trusts as you desire in your last will and testament. Such trusts are particularly appropriate if you have young children and you die before they become adults. You can set up one trust naming all your children as beneficiaries, or you can set up a separate trust for each child. Whichever way you choose to go, you can, if you wish, instruct the trustee to pay out the trust income, or even some of its assets, for the benefit of your child(ren) until they attain the age(s) at which your will specifies they receive the assets themselves. In this way you can ensure that your child(ren)'s needs will be taken care of even when they are too young to manage the money themselves.
Another advantage of a testamentary trust is that you can name it as the beneficiary of any life insurance policies you take out on yourself. These proceeds can fund most, if not all, of the trust while your child(ren) grow up.
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