Stautz Law

Tag: Testamentary Trust

  • Choosing Trustees for Testamentary Trusts

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    Hi folks, it’s Andy Stautz with Stautz Law. I am back for another general informational video about Indiana law. Today we’re talking about testamentary trusts, specifically your choice of trustee, choice of fiduciary for your testamentary trust.  

    So I’ve recorded lots of talks about how testamentary trusts work, what they are, But basically, it’s a trust that you create in your will. So the trust doesn’t exist until the will is probated. Now all of a sudden, okay, we’ve got a trust.  

    Why the Choice of Trustee Matters

    Just like for any other trust, you need a trustee. That’s the person who is in charge of carrying out your instructions. And the choice of trustee is really important, really important, okay, because You can put any instructions you want in a trust, just about, I mean, you know, within reason, but you can get as creative as you want in the drafting. You can write any rules you want, you can make it complicated, you know, wish lists go crazy.  

    But push comes to shove, a trust only actually works, you know, Legal validity aside, a trust only actually works, only does what you want it to do, if you’ve got a trustee who’s going to carry out your instructions. That’s just behavioral hard truth. I mean, you can’t make something happen unless the trustee does it for you.  

    So you want to get it right. You want to choose a trustee who understands what the instructions are, and it’s going to carry them out and that you can count on.  

    General Trend: Individual Fiduciaries

    So the trend, and it’s been an ongoing trend since long before I was in practice, is to have like individuals, family members, friends, et cetera, serve as trustees. Okay, because I think this has to do with like bank consolidation and the loss of trust departments and increasing fees and requirements. So for many people with a small estate planning trust, right, they’re not going to have a big bank handling it for them. They’re going to name a family member or a friend.  

    Considerations in Choosing Testamentary Trust Trustee

    First Consideration: Can Your Trustee Do the Work?

    And as we’ve discussed in the past, that introduces behavioral risks, right? Because you need to make sure your trustee knows how to do the actual work of being a trustee. like making accountings, keeping an inventory, reporting to the beneficiaries if they need to do that… actually can . . . has the financial and administrative savvy to carry out the trust instructions. 

    Second Consideration: Trustee Conflicts?

    The second point is, you need to make sure it’s someone whose interests align with your interests as regards to the trust. So you don’t want a situation where the trustee is tempted to co-mingle funds or to apply trust funds to benefit his or her own life, et cetera.  

    And a common scenario here is, okay, what about the parent of a minor? If the parent of a minor is a trustee for that minor, they’re constantly going to be facing decisions like, okay, do I use my own money to pay for, childcare expenses, et cetera? Or can this be a trust distribution? Can I use trust money? And, that’s . . . maybe it doesn’t make a difference, right? But it’s something to think about. Do you want your trustee to be in a position where they make that choice or face that temptation?  

    And so, especially for testamentary trust, where the trust doesn’t have any history or pattern, it just comes into being once you’re gone. You need to be especially sure that your trustee or the person you’re thinking about naming as a trustee is going to accept the appointment, is going to know what to do, and you know, isn’t going to face conflicted decisions often or all the time about how to follow your instructions.  

    Conclusion: People and Values, not Hard Law

    This is not a realm of legal certainty, right? This is a discussion about values and people, and it’s very case by case and specific. So I realized it was general talk, but it’s one of the things we’ll talk about if you come to me for your estate planning, and it’s one thing you should definitely be talking to, you know, any attorney about if you’re in a place where you’re making a testamentary trust or considering one.  

    I hope that’s been a helpful overview. You’re on my website. Give me a call, give me an e-mail, and we’ll set up a time to talk about your specific facts. Hope that was helpful, and bye for now. 

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  • Planning with Testamentary Trusts

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    Hi folks, it’s Andy Stautz at Stautz Law. I’m back with a follow up video. Last time we talked about the difference between testamentary trusts created in your last will and testament, and inter vivos trusts which were created, you know, between living people.  

    What Can a Testamentary Trust Do?

    And I said, hey, wait a minute, you know? Testamentary trusts are probably underused.  

    Just like inter vivos trusts the really common revocable living trust, even a supplemental needs trust, which I’ve discussed in the past. You know, a testamentary trust can do all of those things. It’s just a matter of when it’s created by will versus while alive.  

    So let’s talk planning scenarios.  

    I think pretty much every estate planner, every estate planning attorney kind of has their own favorites, right? Their own plans that they like to recommend.  

    Example 1: Testamentary Trust as Worst-Case Backup

    One that I’m seeing kind of often and that I think deserves consideration is what I’ll call the emergency, like the worst-case scenario trust. OK so if my clients are young adults, you know, maybe in their 20s, in their 30s, even in their 40s, and they’ve got kids, they need some sort of estate plan.  

    But their risk of death or simultaneous death of both parents is really very low. So really they don’t need to be putting everything in a trust right away. . . . . They’re not at a point in their life where they really need to be…. focused on administering their property. They don’t want extra administrative burdens ‘cause having young children is hard enough.  

    So one thing I’ve gone to recommending is a will with a testamentary minor’s trust. So. You know you’re not avoiding probate, right? It’s a will. But you’ve at least got the trust in there, so if something bad does happen, you know you can, at least control the distributions to your minor children. You can designate a guardian. And… it’s kind of like a halfway plan, right?  

    Cost-Benefit; Remote Risk; Serious Consequences

    It’s like. We can mitigate the worst of the risk. You know, it’s a remote risk. But the consequences of not planning at all are big.It’s kind of halfway in cost and complexity between no plan or just beneficiary designations or whatever, and full blown trust planning.  

    It’s just like, OK, well, let’s get a will in place with a testamentary trust that takes care of the kids. You hope you never have to use it, but at least it’s, you know it’s there and it’ll cut down on the worst consequences. 

    So that’s a common scenario. 

    Example 2: SNT for Continuing Care

    I mentioned supplemental needs trust earlier. That’s another really common one, that’s more common for older clients. Where maybe they’ve got adult children, an adult child with a disability and they’ve been caring for that person. You know they can do it fine while they’re alive. They don’t need an inter vivos trust right away. But it’s like, OK, how to continue the care after death. Well, a testamentary supplemental needs trust that can carry that forward. So that’s another common planning scenario.  

    But like I said, you know, you’re only limited by your imagination. So if you want to talk about your circumstances, give me a call. These are fun puzzles to solve. And it’s always good to get a plan in place. Thanks for listening and I’ll see you next time. 

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  • Testamentary vs. Inter Vivos Trusts

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    Hi folks, it’s Andy Stautz at Stautz Law. Today we’re talking about another estate planning topic and that is the difference between testamentary trusts and inter vivos trusts. I’m kind of interested in testamentary trusts because I I think they’re underused. So let’s let’s talk about the difference.  

    This is the terminology, and then in a future video, we’ll talk about how to use them.  

    Why is it called a Testamentary Trust?

    The basic difference is a testamentary trust is established in your will. Your last will and testament. So “testamentary,” it’s in the testament. These trusts don’t exist until you die. Until the will makes them exist.  

    Why is it called an Inter Vivos Trust?

    Contrast that with an inter vivos trust: inter vivos, you’ll see it written here. INTER. That’s Latin word meaning “between.” Vivos: V-I-V-O-S vivos are living people. Also Latin. I can’t think of any words off the top of my head, but “revival,” right? That “V-i-v,” that means alive.  

    So inter vivos trusts are ones you make between people who are alive. And the most common… probably the most common inter vivos trust is a revocable living trust. That’s the basic probate avoidance trust that you see all the time.  

    What Kind of Trust is a Revocable Trust?

    And you might say, wait a minute. I thought my revocable trust only works after I die. It’s like a will substitute. And the answer is, yeah, you’re right. . . most of the action happens…in a revocable living trust, most of the action happens after death. That’s when you know the trust winds up. The successor trustee has to distribute the assets, you know. 

    But you made it while you were alive. You passed the trust assets while you were alive. So that’s what makes itan inter vivos trust.  

    Now returning to testamentary trusts. Like I said, they’re created in a last will and testament, so you need to have that document, obviously. But otherwise there aren’t really any restraints.  

    Uses and Limits on Testamentary Trusts

    You know, if your will doesn’t have a trust, it might be two, three, four pages. You can put a a great big honking trust in your will. You know, as complicated as you want it to be.  

    I think the most common use is a minor’s trust. So we’ll talk about planning scenarios in the next in the next situation. But you know it could be you’re in a place where it doesn’t make sense to retitle all your assets into a trust and worry about administering a trust. You know, as an emergency backup, maybe you’ve got a testamentary trust so that you don’t accidentally drop a huge inheritance on minor children. Because you know that causes problems both while they’re minors and when they come into the money all of a sudden on reaching majority.  

    So that’s kind of the difference: testamentary, created in your last will and testament; inter vivos, between living people. And we’ll talk more about uses later. 

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    Book your initial planning meeting with Stautz Law and we’ll discuss your individual needs. No obligation.

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