You establish a testamentary trust in a Will. It directs a named trustee to manage and distribute assets and income to designated beneficiaries of the trust.
You can designate the number of years it will survive, within permissible, legal limits. The trust becomes active at the time the will enters probate. The assets undergo the probate process and are, therefore, exposed to creditors’ claims. If you intend to avoid probate, a living trust would be a more suitable alternative. Individuals commonly choose between two types of trusts: family and spousal.
Trusts re carefully designed estate planning tools and will need the guidance of a good tax lawyer.
The purpose of a Family Trust is to:
• Protect the interests of underage children and any family member with special needs
• Safeguard adult children’s assets from creditors or divorce settlements
• Manage funds for spendthrift adult children
• Minimize disclosure of small business assets that could be susceptible to lawsuits or creditorsSpousal Trusts are established to provide your spouse with funds. These trusts also:
• Protect your children’s assets should your spouse remarry. It can assure the inheritance of children from a previous marriage
• Reduce income tax through income splittingFunding trusts
If an estate will have significant capital gains tax due and/or debts, consider using life insurance to cover all liabilities. You can also increase the death benefit to pay off business agreement liabilities (if any) and provide specific trusts with the necessary cash.