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Video: Parents - Should You Create A Contingent Trust?

Updated: Oct 16


by Peter J. McFarland, J.D., LL.M


As an attorney with years of experience in the field of estate planning, one of the most common questions I run into is whether it makes sense to set up a trust.


For an estate planner to meet their client’s needs and expectations, there are 3 possible options:


1) Set up a trust,

2) Forego the trust in favor of a simpler estate plan, or

3) Create a contingent trust.


This third option – a contingent trust – is the one I’d like to explore today. I view it as a flexible middle ground between the option of not setting up a trust at all and setting up a trust that may or may not be ultimately needed.


The way a contingent trust works is that we create a will that instructs the client’s personal representative to set up a trust only if certain contingencies are met, when the client passes away. If the contingencies aren’t met, the trust isn’t created.


Here’s an example: A client is concerned that their kids may inherit wealth before they’re old enough to make good financial decisions. They therefore want to make sure that even if they pass away, their kids won’t inherit a large sum of money until they reach the age of 35. To accomplish this, the client sets up a contingent trust, meaning the creation of the trust is contingent upon the child being under age 35 when the client passes away. The will says that if this contingency is met, the trust will be established and funded. The trustee is authorized to make discretionary distributions to make sure the children’s health, education, maintenance, and support remain in place until they are age 35, at which time the trust is liquidated and the children receive whatever is left of the inheritance, at that time.


Here’s the important point: The trust is only created if it’s needed. If the client passes away and their children are over the age of 35, there’s no need to go through the headache of creating, funding, and administering the trust, because a trust was never needed. That’s what makes these contingent trusts so useful – a trust is created only if it’s needed to accomplish a client’s goals.


A contingent trust may not be the right fit for all clients, but it may be a great option for a client who is looking to keep things simple, while also looking to accomplish a few important estate planning goals.


To learn more about the many estate planning options, contact us at info@longlg.com. I’d love to help you craft the ideal plan to give you and your family greater certainty and peace of mind. Thanks so much for joining me.


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