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A Testamentary Trust is a trust created through your will that is established for the benefit of your beneficiaries.
Jay and Pamela are in their 70s and have a combined estate of $1 million. Their older son, Michael, is married with three teenage children, while the younger son, Chris, has been living in a common-law relationship for several years and has two young children. Jay and Pamela want to ensure that whatever inheritance they leave for their sons will not have to be shared with a spouse or partner if the relationship ends. They are also concerned about Michael’s difficulty managing his financial affairs.
Rather than leaving their sons outright gifts in their wills, Jay and Pamela establish testamentary trusts in their wills for each son’s share of the estate. By using a discretionary testamentary trust, they are able to better protect their children’s inherited assets in the event either one separates from their spouse. Michael’s inheritance is also protected from his own mismanagement by having a financial trustee oversee the use and distribution of the assets, helping to ensure there are assets for his lifetime and likely his children’s.
2 Assumes initial investment of $500,000, 5% rate of return (interest income) and marginal tax rate of 46.41%. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. The information is provided solely for informational and educational purposes and is not intended to provide, and should not be construed as providing individual financial, investment, tax, legal, or accounting advice. Professional advisors should be consulted prior to acting on the basis of the information contained herein.
Source: Assante Wealth Management Generations series, “Testamentary Trusts”. January 2010. Content provided
by the United Financial Wealth Planning Group.
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