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In your will, you name a trustee to undertake the management and distribution of your assets, according to detailed instructions. This trustee may or may not be the same person or institution named as executor of the will.
There are many benefits to a Testamentary Trust. First, the trust allows you to take advantage of estate tax reduction strategies. You also can alter the terms of your trust if your situation changes by updating your will. And, you have nearly unlimited discretion in specifying trust provisions. Testamentary Trusts can be designed to do the following.
- Provide Continuing Care
You could, for example, devise a trust to provide for the ongoing needs of your spouse and family or to furnish a lasting legacy to a favored charity. The trustee would invest assets to provide continuing income to your designated beneficiaries.
- Meet Major Expenses
If you direct, trust funds could be used to meet major or unexpected expenses for your beneficiaries. For instance, you might direct the trustee to make funds available for a child's medical expenses or a grandchild's education.
- Preserve the Value of Your Estate
A trust should be drafted to reduce the expenses of estate settlement. Terms also can be written to minimize overall estate tax liabilities by dividing assets into separate trusts.
Designating a Trustee
By creating a trust, you are placing your assets, your wishes, and the welfare of your family in the hands of your designated trustee. Choosing the right person or institution to fulfill this important role is imperative. To make an informed decision, you should first understand the complexities of the role of the trustee. A trustee is an active, integral part of the trust relationship. When named as a trustee, an individual must assume the following types of responsibilities:
- Exercising discretion in ambiguous circumstances
- Maintenance and investment of assets
- Recordkeeping and accounting
- Transaction and investment reporting
- Tax preparation and filing
- Discretionary and non-discretionary distribution of assets
Even from this abbreviated list, it is easy to see that the role of the trustee demands serious, dedicated attention. Who can you trust with your familys financial future? Remember, a trustee can be either a person or an institution. It is important to weigh your options carefully. When making your decision, look for the following characteristics:
Select a trustee who will not be swayed by self-interest in the interpretation of trust provisions or in the management and distribution of assets. Usually a professional fiduciary, rather than a family member, provides the best assurance of this.
- Investment Expertise
The trustee is responsible for investing the assets of the trust until they are distributed pursuant to the terms of the document. By selecting someone with extensive investment experience and resources, you can have confidence that your assets will be appropriately managed and conserved for your beneficiaries.
- Tax and Accounting Expertise
Transaction and investment reporting as well as tax preparation and filing are important roles of the trustee. To ensure that this detailed work is done in an accurate and timely manner, it is best left to an experienced person or institution.
If an individual is named as trustee, other personal commitments, as well as illness or incapacity, may hinder the ability to conduct the affairs of the estate. A trustee's duties encompass several areas of expertise which can be intimidating to an individual. For many, the hiring of a professional fiduciary like Northern Trust reduces stress and anxiety as well as the workload.
Where to Go From Here
Getting your affairs in order is important. Following is a summary of the steps involved in creating a Testamentary Trust. Your accountant, attorney, and estate planning professional will guide you through the various tasks associated with each step.
- Determine Your Needs
First, ask yourself how you want your assets managed after your death. If you already have a will in place, think about how a trust might ensure your wishes are followed and the possible estate tax benefits are realized.
- Identify Beneficiaries and Distribution Options
Name the individuals and charitable concerns to whom you would like the trust to make distributions after your death.
- Select an Attorney
It is important to identify an attorney with extensive experience in estate planning. Northern Trust can recommend a number of qualified attorneys.
- Select a Trustee
This individual or professional trustee will be responsible for administering your assets after your lifetime. You might elect to name an individual and a professional fiduciary to serve a co-trustees. If you name an individual, you also should name a successor trustee in the event of the original trustee's incapacity or demise.
- Draft Your Will
Work with your attorney to draft a document that achieves your estate planning objectives and reflects your personal intentions. File a copy with your trustee and successor trustee. In creating a Testamentary Trust your will covers, among others, the following points.
- Designation of the trustee.
- A statement of the investment powers granted to the trustee, as well as authority to distribute principal and income.
- Designation of a successor trustee.
(This provision is necessary only if an individual is named as trustee.)
- Instructions for distributions of assets.
Expense and Effort
Your attorney will, of course, charge a fee for drafting your will. Once the will is established, it is wise to consult periodically with your attorney to ensure that your estate plan and tax strategies remain up to date.
How to Find out More
If you would like additional information on Testamentary Trusts, please get in touch with us. A Northern Trust financial planning professional would be pleased to assist you.
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