A will can do much to fulfill your estate wishes for your loved ones, but you may desire additional protections for your surviving family members, especially if they are minors. Creating a trust could help you in this regard, but you might want your assets out of a trust and free to use until your death.
In this case, you might consider forming a testamentary trust. Unlike living trusts which take effect while you are still alive, a testamentary trust does not become active until after your death.
The use of a will
You create a testamentary trust through your will, specifying provisions such as who the beneficiaries are, how to manage and distribute assets, and when beneficiaries will receive distributions. Additionally, you will select a trustee to manage the trust assets and ensure their distribution according to the terms of the will.
The administration of the trust
Testamentary trusts allow you to establish conditions for the dispersal of assets. Instead of a blanket distribution, you can make sure your heirs do not squander their inheritance. For instance, you may set age milestones for beneficiaries to access trust property or mandate the use of assets only for specific purposes such as education or healthcare.
The distributions may occur over a period of years. To take an example, a beneficiary could receive a third of trust assets at age 25, half the balance at 30, and the remainder at 35. Alternatively, the trustee may disperse income annually with a percentage of principal distributed at certain ages.
Legal compliance
Ensure that your will and the testamentary trust you create comply with Arkansas and federal laws. Given that a testamentary trust is a separate financial entity, certain tax laws apply to it. According to federal law, if the trust takes in an annual income of $600 or more, it must file a Form 1041 tax form, a U.S. Income Tax Return for Estates and Trusts.
Creating a testamentary law will take some additional work, but it offers a flexible option if you know minor family members or relatives with certain needs will inherit from you.