A contingent trust is a trust that can only be created or funded if certain conditions exist when the testator dies. This means that a contingent trust is a trust that has not come into existence but will come into existence in the future when a particular event occurs. Most of the time these trusts are created by the terms of a grantor’s Will. An experienced Texas estate planning lawyer can give you more information about these trusts and help you create them.
When To Create A Contingent Trust
You can create a contingent trust to help manage assets your children may inherit if you die before the children reach 21 years old. That means that if you die when your children are 21 years or older, the trust will not be created. Contingent assets can also be used to oversee and manage assets for heirs that are incapacitated or disabled. In this situation, the contingency trust will only be created if the heir is disabled or incapacitated.
Trustee Discretion And Fiduciary Duty
One of the most important requirements for creating a trust is the appointment of a trustee. Trustees must perform their duties ethically and legally on behalf of the testator. They must distribute the assets impartially without any favouritism. Since they are usually held responsible for the mismanagement of funds by courts, trustees must also avoid misusing the funds in the trust. For example, trustees should not negligently invest the funds held under the trust. Trustees must always act honestly, in good faith, and in accordance to the terms of the trust document to avoid any legal problems.
Other Types Of Trusts
Other types of trusts include:
- Living trusts: It is a trust created when the grantor (person that created the trust) creates when the grantor is still alive, and that can either end when the grantor dies or continue after the grantor’s death. Property is distributed according to the trusts terms.
- Revocable trust: These are trusts that the grantor can revoke or amend the terms. They only become irrevocable after the grantor dies. A trustee distributes the assets according to the terms of the trust agreement once the trustee dies.
- Irrevocable trust: A testator cannot revoke an irrevocable trust once the testator has created it. What that means is that the testator cannot change the beneficiaries, change terms, or remove assets. These trusts are often used to protect assets from potential creditors and also for estate tax avoidance.
Definition Of Terms
The following are some of the basic terminology used when creating a trust:
- Grantor (testator): This is the person that contributes property to a trust, chooses the trustee and beneficiaries, and sets terms for beneficiaries of the trust and trustee.
- Beneficiary: A beneficiary is the person that benefits from the assets that are held under the trust in accordance to the terms of the trust.
- Trust agreement: A trust agreement is the document that creates the trust and spells out the rules that the testator wants followed for property held in trust for beneficiaries.