We have often extolled the advantages of creating and funding various types of living trusts, also referred to as “inter-vivos trusts.” However, often overlooked are “Testamentary Trusts,” which are trusts that are established in an individual’s Last Will and Testament.
Individuals who are candidates for Medicaid or long-term care planning often transfer most of their assets out of their names during their lifetimes. Consequently, there are usually no remaining assets that will be distributed pursuant to a will. Nevertheless, there are many reasons why clients will want to establish a testamentary trust.
Testamentary trusts are often created for a spouse who became ill and is expected to be too ill to appropriately manage assets upon the death of the well spouse. If it is anticipated that the sick spouse will be Medicaid eligible, the testator will often be advised to establish a testamentary supplemental needs trust.
Such a trust would permit the surviving spouse to remain on Medicaid and/or other governmental entitlement programs, while giving the spouse a “war chest” of funds that can be used on her behalf to supplement, but not supplant these entitlements.
Another common reason for establishing a testamentary trust is when a testator (the individual creating the will) has minor children. The trust allows the individual to specify when minor children
are to receive the trust assets.
Typically, health, education, maintenance and support distributions can be made at any time, and the rest of the trust principal is distributed in intervals. For example, many individuals provide that 1/3 of the assets are distributed to the children at age 21, another third (one-half of the balance) at age 25 and the balance at age 30. The testator will appoint a trustee to manage the assets on behalf of the children.
Some individuals set up a testamentary trust for a child who is a spendthrift and, in the testator’s opinion, the child is not capable of managing the funds. In such a case, the testator appoints a trustee to distribute funds to the child, either as needed, or when the child reaches a specific age(s).
Another reason to create a trust would be to defray the expenses of managing real property during its use by a testamentary beneficiary. To illustrate, an elderly Brother and Sister reside together in the family home. Brother and sister may decide to create trusts in their respective wills to assist the survivor in managing the home and other expenses after the death of the first sibling.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, and Brooklyn, NY. Mr. Fatoullah has been named a “fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also serves on the Executive Committee of the Elder Law Section of the New York State Bar Association. Mr. Fatoullah has been certified as an Elder Law Attorney by the National Elder Law Foundation. Mr. Fatoullah currently chairs the Legal Committee of the Alzheimer’s Association, LI Chapter and is a co-founder of Senior Umbrella Network of Queens. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. The firm can be reached by calling 718-261-1700 or 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.
* Certified as an Elder Law Attorney by the National Elder Law Foundation.
