The primary purpose of Wills and Trusts created in your Will, but not funded until after your death, is protecting your beneficiaries from themselves and creditors. Trusts created in your Will are called Testamentary Trusts. A By-Pass Trust is a great way to reduce estate taxes but it can also provide a surviving spouse with income while preserving trust principal for children of the current or a prior marriage. The By-Pass Trust may also be used to assure that wealth is responsibly used for the benefit of minor and adult children. The family, spendthrift, asset protection and special needs provisions described in the following paragraphs may be included in your by-pass trust. With a testamentary Family Trust you may provide income to your adult child while minimizing the risk that the funds will pass to the child's spouse upon the child's death or divorce. Upon the child's death, the trustee may continue the trust for the sole benefit of the grandchildren. The Family Trust may include spendthrift and asset protection provisions described in the following paragraphs. An Asset Protection Trust is a type of trust that is designed to protect the trust funds from an adult child's creditors. The Trustee has the discretion to distribute income and principal to the beneficiary for specific purposes. As long as there is no judgment or divorce, the trustee can freely distribute assets to the beneficiary. As soon as a legal problem crops up, the trustee may stop distributions and the creditor or spouse has no right to compel distributions. Similar to the Asset Protection Trust, a Spendthrift Trust is appropriate when a beneficiary is unable to manage money or suffers from substance abuse. You want to assure that the beneficiary will have enough money to live, but you also want the money to last for years rather than months. As with the Asset Protection Trust, the trustee has the discretion to distribute income and principal to the beneficiary as needed and only for prudent expenses. A Special Needs or Supplemental Benefits Trust minimizes the risk that a spouse, child, parent or sibling who is under disability may lose eligibility for public benefits such as Supplemental Security Income (SSI) and Medicaid. When the disabled beneficiary dies the trustee may distribute the balance of the funds held in trust to or for the benefit of another person who is called the remainder beneficiary. Whether or not and what type of trust may be appropriate for you depends upon your specific case.
