What Is A Contingent Trust?

If you have life insurance, there is a good chance no benefits will ever be paid. An insurance settlement is contingent on you dying during the term of the policy. If the term expires before you die, the insurance company’s obligation to pay the benefits is not triggered.

Like insurance, some trusts are not created or funded unless certain conditions exist when the testator dies. If the conditions specified in the trust document do not exist when the testator dies, the trust will not be created.

The most common type of contingent trust is one that parents set up to manage assets their children may inherit if their children are orphaned before they reach a certain age. For example, parents may direct that a trust should be created for their children if they both die before their children are 21 years old.

More than likely, their children will be much older than 21 when they die. But in the unlikely event the parents do die while their children are young, they can rest assured that the assets will be managed by a person they choose, and distributed how and when they decide.

Contingent trusts can also be created to oversee management of assets that may pass to someone who is incapacitated when the estate is settled. For example, suppose you and your adult child are involved in a car accident. If you die in the accident, and your child is incapacitated, assets you may leave to that child can be held in trust until the incapacity is removed.

There is almost always is a possibility that part of your estate will be inherited by a child under a specified age or someone who is incapacitated. Therefore it is always a good idea to add a contingent trust to your will.