A testamentary trust is a substitute for an outright gift under your will.
A trust is an arrangement under which you give your property to somebody else and he or she holds it for your or your beneficiaries. You will want to give the other person directions concerning how the property is to be managed, how much income you want, who gets the property when you die, what the other person’s fee is for holding and managing your property, and so on. Those directions should be spelled out in a writing, called a trust agreement, to prevent misunderstandings later on.
Testamentary trusts are trusts established by a will. The testamentary trust takes effect at death. In a testamentary trust, the trustee would not get the property until you die; you would control the property until then. The assets must go through probate before being placed in the testamentary trust.
Benefits of a Testamentary Trust
- You can name the time the recipient is to receive the property. If you do not set up a trust under your will, then any beneficiary, including your children, will take the property when they turn eighteen in Colorado. You may think age eighteen is too young for your daughter to receive 100 shares of stock. The advantage of a trust is that you can predetermine the age at which you want your daughter to get those 100 shares. You can provide that she gets only the income from the shares until age twenty-five. You can also provide that if the trustee determines that she needs some of the principal for her health or education before she reaches twenty-five, then the trustee can distribute whatever number of shares the trustee decides is best. The trust would end when your daughter reaches twenty-five, at which time she would take the remaining shares outright.
- A trust provides for competent management. An outright gift of property to a beneficiary who has poor business sense, or who is ill, or who is not competent because of young or old age could result in a fast loss of that property. A trust can provide protection for the recipient. It can give the benefits of the property, while making sure that the property is not all lost. When you choose your trustee, you will want to choose someone whose management and business sense your respect. A member of the family is not always the best trustee.
- A trust can keep property in your family. A trust can be useful if you are in a second marriage. For example, If you had children in a prior marriage, a trust can enable you to provide for your current spouse, but ensure that property passes to your children when he or she dies in whatever shares and proportions you state in your will.
- A trust can put certain restrictions on property.
- A trust can transfer property after a beneficiary dies.