Testamentary Trust
What is a testamentary trust?
A testamentary trust is a trust created by the instructions in a person’s last will and testament. It becomes effective only after the testator (the person who made the will) dies and the will is admitted to probate. The trust appoints a trustee to hold and manage assets for named beneficiaries according to the conditions set out in the will.
How it works
- The will contains provisions that direct the executor to create the trust after probate.
- Once probate is complete, the executor transfers the designated assets into the trust.
- The trustee manages and distributes those assets according to the trust’s terms (for example, paying for education, health care, or staggered distributions at certain ages).
- The trust continues until a specified triggering event or expiration (e.g., beneficiary reaches a set age, graduation, or a fixed date), at which point remaining assets are distributed.
Key features
- Not effective until death and probate.
- Typically treated as irrevocable once established.
- Can name minors or impaired beneficiaries and set conditions for distributions.
- The trust’s details become part of the public probate record.
Parties involved
- Grantor/testator: person who directs creation of the trust in their will.
- Executor: person who carries out the will and establishes the trust after probate.
- Trustee: person or institution that manages trust assets.
- Beneficiaries: people or entities who receive the trust’s benefits.
Testamentary trust vs. living (inter vivos) trust
- Timing: Testamentary trust is created at death; a living trust is created during life.
- Probate: Living trusts can be structured to avoid probate for assets placed in the trust; testamentary trusts require probate.
- Revocability: Living trusts can be revocable or irrevocable while the grantor is alive; testamentary trusts are effectively irrevocable once established at death.
- Control: Living trusts give the grantor more direct control over terms and administration while alive.
Advantages
- Provides controlled distributions to minors or beneficiaries who may not be ready to manage large sums.
- Allows conditional, phased, or specified-purpose disbursements (education, health, maintenance).
- Can be created without the upfront cost of establishing a living trust; only takes effect if and when needed.
- Provisions can be changed or removed while the testator is alive by changing the will.
Disadvantages
- Does not avoid probate; the will (and trust terms) becomes a public record.
- Probate can delay funding of the trust and distributions may take weeks or months.
- Risk of drafting errors or unclear terms that lead to disputes or failure to carry out the testator’s intent.
- Trustee selection: an appointed trustee may decline the role and a court-appointed trustee might be required.
How to create a testamentary trust
- Decide whether a testamentary trust fits your goals (e.g., protecting assets for minors, managing distributions).
- Choose beneficiaries, trustee(s), and the conditions for distribution (ages, milestones, permitted uses).
- Specify which assets will fund the trust and any administrative powers for the trustee.
- Draft clear will language establishing the trust and directing the executor to fund it after probate.
- Work with an estate planning attorney to ensure compliance with state law, avoid ambiguity, and properly integrate the trust with other estate documents.
Practical considerations
- Probate and court oversight: Expect court involvement to validate the will and authorize the executor—often requiring a letter of testamentary (proof of executor authority).
- Trustee duties: Select someone trustworthy and able to administer accounts, record transactions, and provide accountings to beneficiaries and the court as required.
- Tax and public-record implications: Consult advisors about estate taxes, beneficiary tax treatment, and privacy concerns.
Examples
- Staggered payouts: A will directs a $200,000 bequest to a child, delivered half at age 35 and half at age 55 to prevent early dissipation of funds.
- Special-needs or Medicaid planning: A testamentary trust may be drafted so a surviving spouse or dependent can receive funds for medical expenses without affecting Medicaid eligibility (subject to applicable law and timing rules).
Common terms
- Testamentary documents: Collective estate planning documents that govern asset distribution—wills, codicils, and related agreements.
- Letter of testamentary: A court-issued document that confirms the executor’s legal authority to act for the estate during probate.
Do you need a lawyer?
While DIY forms exist, estate planning and testamentary trusts involve legal and tax consequences and must comply with state law. Working with an experienced estate planning attorney is strongly recommended—especially when multiple beneficiaries, complex assets, or tax and government-benefit issues are involved.
Explore More Resources
Conclusion
A testamentary trust can be a useful tool to control when and how estate assets are distributed, protect vulnerable beneficiaries, and specify purposes for funds. Its reliance on probate and public disclosure, however, means it is not the best fit in every situation. Consult an estate planning attorney or financial advisor to compare options (including living trusts and other instruments) and draft clear, enforceable provisions that meet your goals.