Parents are always going to be concerned about leaving all their money to their kids when they pass away. Especially when the children are still minors or young adults, there’s a fear that they might use the money irresponsibly if complete control was given to them. Parents dealing with this concern would want to create a way to lock the money away from their kids — a setup where the money can be used for them but they won’t have full control over the estate.
There is a way to do this is any estate plan, whether a will, revocable trust, or other forms of estate planning documents. This is called a testamentary trust.
What is a Testamentary Trust?
A testamentary trust is a sub-trust inside the estate planning document. Usually, these outline conditions before the beneficiaries can receive the assets. This is how parents can set up certain conditions and rules that will help them ensure that the money is used responsibly.
In a testamentary trust, one can say that the children will only get the money when they reach a certain age. For example, 25 or 30 years old. While they have not yet met the condition, the money can be used to pay for their health care, education, etc. But it cannot be distributed to them.
Any types of conditions and rules around the assets can be created in a testamentary trust — as long as they’re not illegal.
How Long Can a Testamentary Trust Last?
Different states may have their own rules and principles about how long a testamentary trust can last or the period when the money can be locked away from the beneficiaries. In Minnesota, there is what is called the rule against perpetuities.
Simply stated, this rule allows the testamentary trust to keep the money locked up for the entire life of the beneficiary plus 20 years after that. So parents can create a testamentary trust that withholds the money from their children for their 20 years after their death. The money would then go to the next generation.
The rule against perpetuities does come with exceptions, in which cases there is no limit to how long the testamentary trust can last. One example is the case of a charitable trust, which can last forever. Parents can also opt for a true multi-generational legacy if they want the money to last for their grandchildren, great grandchildren, and several more generations down the line.
It’s worth noting, though, that some states do not have the rule against perpetuities. So in some places, a testamentary trust can last forever. Every state would have different rules regarding how long a testamentary trust can keep the money locked up. So it’s important to consult with an attorney who is licensed in the State where one is residing.