When talking about contingent trusts, the two most important things to consider are trust and conditionality. A contingent trust is a trust that is only created if certain conditions, known as “contingent conditions,” are met. In layman’s terms, contingent trust is trust that will only be established upon the occurrence of a specific event or action.
For example, let’s say Bob creates a will and states in it that a trust will be formed for the benefit of his daughter Jenna upon his death. That trust is a contingent trust because it depends on the condition of Bob’s death. If Bob were to be hit by a bus while walking down the street tomorrow, the trust would be formed. If Bob were to live for another 10 years without incident, the trust would not be established.
Contingent trusts are useful for situations where estate planning goals are being written that depend upon future events. For instance, if someone wanted to create a trust that would only be active if certain conditions were met, like a future marriage or a particular health outcome, a contingent trust could be used. At the same time, a contingent trust could also be used to protect assets if catastrophic events or uncertain occurrences take place, such as the death of a primary beneficiary.
Ultimately, contingent trust is an important concept to understand for estate planning or financial planning purposes. By understanding the concept of contingent trust, individuals can better identify when they may need to create a trust that will be dependent on certain conditions, or when they may need to create a trust that will remain active regardless of the future.