A last will and testament is a document that can accomplish a great deal for the person writing the Will and his heirs. Through a Will, a person can leave his assets to whom he wishes in the manner of his choosing.
One of the most powerful aspects of a Will can be a trust. A trust in a Will is called a testamentary trust. From a practical standpoint, a testamentary trust is merely words in the Will. For instance, the Will might say, “My executor shall pay any inheritance passing to my son Joseph to my Trustee Mary to hold and administer for Joseph’s benefit.” Those words contained in the Will create a testamentary trust.
A testamentary trust, as with any trust, is simply one person—in the example above, Mary—holding property for the benefit of another person—in the above example, Joseph. A trustee holds the property as a fiduciary, meaning that the trustee owes the utmost duty of care to the beneficiary of the trust.
A decedent might wish to create a trust for a beneficiary under his Will for a number of reasons. A beneficiary might be disabled or might have problems with drugs or alcohol or the beneficiary might have problems managing money.
Sometimes, a decedent wishes to create a trust for a beneficiary simply because he doesn’t want the beneficiary to have unfettered control or access to the inheritance. The father might fear that if he leaves his son’s inheritance to his son and the son later gets divorced that the son’s ex-wife will lay claim to the inheritance.
A testamentary trust can help protect an inheritance from many issues facing a beneficiary. When placed into a trust, an inheritance can be protected from a beneficiary’s creditors with a spendthrift clause.
A spendthrift clause is a clause in a trust or a Will that protects the assets held in the trust from the creditors of the beneficiary by preventing the creditors and the beneficiary from encumbering the assets of the trust. A trust with a spendthrift clause is commonly referred to as a “spendthrift trust.”
If an inheritance is held in a spendthrift testamentary trust, then the assets held in the trust can be insulated from the beneficiary’s creditors. So, for instance, if a father leaves his son an inheritance and places the inheritance into a testamentary trust with a spendthrift clause, then the inheritance is protected in the event the son is sued or gets divorced.
Recently, our State enacted the Uniform Trust Code. Pursuant to the trust code, a spendthrift clause is valid. The trust code also permits a beneficiary to serve as the sole trustee of a trust. So, if the father leaves his inheritance to his son, the son can serve as sole trustee of the trust for his own benefit and the assets in the trust can be protected from his creditors with the use of a spendthrift clause.
Given these provisions of the law, some people create what are colloquially referred to as “bloodline trusts” in their Wills. A bloodline trust is a trust designed to hold the assets of a beneficiary for the entirety of the beneficiary’s life then to pass those assets onto the blood relatives of the beneficiary.
For example, a father leaves an inheritance to his son Joseph. The money is held in a bloodline trust for the remainder of Joseph’s life. The bloodline trust has a spendthrift clause, protecting the assets held in the trust from Joseph’s creditors. When Joseph dies, the remaining assets of the trust pass to Joseph’s children, the grandchildren of Joseph’s father.