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How Does a Testamentary Trust Work?

Parents want to protect their children from harm at the hands of others, but sometimes they also need to protect their children from their own tendencies to make bad choices. Assume for a moment that you have a child that has any one or a combination of these personality traits:

  • Lives beyond their means
  • Addicted to shopping or gambling
  • Addicted to drugs or alcohol
  • Mentally immature and easily conned
  • Inability to save money
  • Has a list of creditors
  • Unhealthy relationship choices

If this person was to inherit a large sum of money or property all at once, there is a very good chance that the inheritance would be gone in a matter of months or a few short years. Your loved one could be left with nothing. Creating a testamentary trust in Colorado is one way to try to help beneficiaries help themselves.

A testamentary trust allows you to place the assets that a beneficiary inherits into a trust.  The settlor (person setting up the trust) dictates the terms of the trust.  A trustee is named to administer the trust for the benefit of the beneficiary.  For example, the beneficiary could receive a monthly or annual check from the trust for a specified amount. Or the trustee could provide the beneficiary specific goods or services on a regular timeframe that is outlined in the terms of the trust. It is important that the trustee be someone who is strong; someone who will adhere to the terms of the testamentary trust even if the beneficiary is pleading a case to receive additional funds. The settlor can even give the trustee the power to withhold payments if they feel it is in the beneficiary’s best interest.

Trust Payments & Creditors

If the beneficiary owes money to creditors, the creditors  can legally go after the portions that are due to them after the beneficiary receives a payment. However, in most cases, creditors cannot demand money from the testamentary trust until a portion or the entire trust has been given to the beneficiary.

Decisions, Decisions, Decisions

There are many decisions that must be made when creating a testamentary trust. The Denver estate planning lawyers at The Brown Law Firm, LLC, can help you draft a testamentary trust that you will feel comfortable with – one that will protect your beneficiary. Questions to consider include:

  • Do you want your beneficiary to get monetary payments or receive goods/services?
  • How much to you want your beneficiary to receive? (Set amounts, percentages, etc.)
  • What timeframe do you want the payments sent out? (Monthly, bi-monthly, annually, etc.)
  • What level of power do you want the trustee to have?
  • What specific situations do you foresee and how do you want the trustee to handle them? (College, medical expenses, etc.)
  • How long should the trust last?

If you feel a testamentary trust might be the right course of action for your loved one(s), contact The Brown Law Firm, LLC, today at (303) 339-3750 or send us a message online to meet with our experts.