Testamentary Trusts and Life Insurance - YouTube

Hi, Dan Krause here and today I want to talk  about testamentary trust or trusts that are  

created after someone passes away. But first, I  want to invite you to subscribe to my newsletter.  

I'm an estate planning attorney and I practice  estate planning and elder law in Wisconsin  

and we put out a newsletter every  month with a lot of good information  

and you can email us at [email protected]  that's [email protected] 

So what is a testamentary trust? A testamentary  trust is a trust that's created by a last will  

and testament that only comes into effect after  someone passes away. Now I want to conflate  

two types of trusts that are very similar and  that's the testamentary trust which is created  

by a last will and testament and a beneficiary  trust which is created by oftentimes a revocable  

living trust and they're both created after  the person passes away so if a person who's  

doing estate planning creates a will and they  want things to go on after they've passed away  

and be held for a certain person or for a  certain group of people they'll create a  

testamentary trust and assets will go into that  trust and they will only be given to that person  

according to the rules of the trust and then  oftentimes when that person reaches a certain  

more mature age let's say 25 or maybe 30  whatever the person who creates the trust decides  

then the person just gets those assets  and is able to use them however they want.  

Why is this concept so important? Well for  disabled people, for incapacitated people,  

and most commonly for young people who really  don't know how to handle money and may make a lot  

of mistakes or just waste the money that was saved  for them during their parents lifetimes oftentimes  

as parents sometimes grandparents sometimes  aunts and uncles and sometimes just benefactors.  

So if you have a young person who's going to  inherit from you or possibly inherit from you  

because you have young children or maybe you have  grown children and their children are young and  

they might receive something from you, it's a  great idea to create a testamentary trust or a  

beneficiary trust so that you choose the person  that handles the money for the young person  

until that young person grows up and gets  old enough or the disabled person etc...  

So that now the person can use the money to go  to school, to go to college, to go to band camp,  

or football camp, or get braces — anything like  that as long as the trustee approves these things  

until the person reaches the age  say 25 in which case the trustee  

then turns over control of the assets  to the young person or the beneficiary.  

Now another thing that's very important is  to remember that the testamentary trust,  

or the beneficiary trust created under a  revocable living trust, does not control  

things that are outside of the trust or outside  of the probate estate in the case of a will.  

Why is this important? Think about life insurance.  Now who are you going to name as a beneficiary  

on your life insurance? Oftentimes we name  our children or if we're married we name the  

spouse first and then the children as an  alternate if the spouse does not survive.  

So what happens if the children are young? Well  what happens is the insurance company will just  

hang on to those assets until the child reaches  their 18th birthday and then the insurance company  

will pay over to that child the whole of the  insurance and then the child can go and spend it  

on the Ferrari or whatever they they might think  is in their best interest at 18 years of age.  

Another option is the insurance company will  insist that the child's guardian get a court order  

that allows them to hand over the money to that  child's guardian. This can be a bad situation in  

case of divorced couples. I've known many divorced  couples, or many divorced people, who would rather  

not have their ex-spouse handling money for  young children, their young children if something  

happens to them. They want to name say the aunt  of the young children or the sister or the brother  

of the person who is doing the planning that may  pass away so that the child's alcoholic father,  

let's say, is not put in charge of the money  and maybe the money would disappear that way.  

How do you manage that? Well what you do is  after you've created a will or a living trust  

with testamentary provisions then you've got to  go to your insurance company and fill out their  

forms and say instead of spouse first and then  children next or children first what you say is  

to my trustee for the benefit of my children under  a trust created in my last will and testament or  

in a beneficiary trust created under my  living trust. So with this language now  

the insurance company will turn over the money  to the trustee, whoever it is that you choose,  

now the trustee can hold it past the 18th  birthday until whatever age you decide,  

or if it's a disabled person, the trustee can  hold it in a special needs trust and then the  

disabled person will not be knocked off any  of their other benefits that they might have.  

So creating a beneficiary trust or a testamentary  trust is very important if you may have young  

beneficiaries or disabled beneficiaries and  it's also very important to coordinate the  

beneficiaries on your life insurance to correspond  with these testamentary or beneficiary trusts.  

If you have any questions about this  or any other estate planning topics  

please give us a call the number is 608-268-5751. Thanks for spending time with me today.