When you bequeath property in a will to someone, she obtains total ownership over the property. While you may suggest in the will how you wish the property to be used by the recipient, once the probate process is closed, that person is not bound to follow your instructions. By creating a testamentary trust in your will, you can place restrictions on how the property you leave behind is to be used, which your beneficiaries must follow. This can be especially useful if you want to provide money for your grandchildren’s education, but want to ensure they don’t use those assets for something else.
Identify what types of education you want to fund. The term “education” can be expansive and can mean a lot of different things. You should consider whether the trust funds could be used to pay tuition for private secondary schools or trade schools.
Read More: How to Create a Trust in a Will
Determine what educational expenses the trust will address. Most trusts dedicated to education will pay for tuition. However there are other costs associated with gaining an education, such as books, room and board. The terms of the trust should specifically identify which educational expenses it will pay.
Consider what would happen to trust funds if your grandchildren do not use it for an education. There are many circumstances in which a grandchild may not need funds for an education. Examples include the grandchild obtaining scholarships, not being admitted to a college, or becoming disabled, so continued education is not an option. In these cases, you may consider including a clause that would release the funds to your grandchildren once they reach a certain age or in the case of a medical emergency.
Review the probate code of your state. For the testamentary trust to be valid, it needs to be created with a valid will. Requirements for creating a valid will vary by state, but generally you need to record the terms of the will and sign it in the presence of at least two witnesses that do not have a financial interest in your estate.
Identify the trustee. The trustee is the individual who will manage the trust, legally own the assets on the trust’s behalf, and distribute the assets subject to the trust’s terms. The trustee should be a trustworthy individual. Consider appointing a trusted family friend, family member or your family attorney. Consulting an online legal document provider can assist you in drafting the will.
Draft the will in a way that creates a valid trust. In addition to complying with your state’s formal drafting requirements for a will, the clause that creates the testamentary trust must meet four requirements. It must demonstrate your intent to create a trust, have a permissible trust purpose, identify beneficiaries and designate property to go into the trust. Since the trust will be providing for the welfare of your grandchildren, the purpose should be permissible. Be sure to identify the trustee and beneficiaries, as well as the property that will be used to fund the trust.
- National Paralegal College: Historical Overview of Wills
- Raymond James & Associates: Trust Basics
- National Paralegal College: Trusts and the Statute of Wills – Creation of Testamentary Trusts
- National Paralegal College: Statutory Requirements for a Valid Written Will
- National Paralegal College: Prohibited Trust Purposes
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.