Testamentary Trust

What is a testamentary trust?

A testamentary trust is essentially a trust that's established within a last will and testament. Unlike a living trust, or inter vivos trust—which is effective during the grantor's lifetime—a testamentary trust becomes effective upon the grantor's death and remains established for a specified term.

Similar to a living trust, a testamentary trust involves three parties:

• The settlor (or grantor), who creates the trust.
• The trustee, who manages the trust for the beneficiary.
• The beneficiaries, who receive the trust funds.

The main purpose of this legal arrangement is to protect assets for the beneficiaries until they're at an appropriate age or position to receive them. People create testamentary trusts generally to benefit the following loved ones:

• Minor children
• Relatives with disabilities
• Individuals facing financial instability

If you're interested in learning more, read this article on 10 facts about a testamentary trust.

FAQs 

How much does it cost to set up a testamentary trust?

The cost of setting up a last will that includes a testamentary trust varies anywhere from a few hundred to a few thousand dollars based on the complexity of the document and legal fees. Consult an estate planning attorney for a clearer picture of how much it would cost based on your location and circumstances. 

What are the benefits of a testamentary trust?

There are several benefits to including a testamentary trust into your estate planning, such as protecting your assets for minor beneficiaries until they come of age. It also allows for income distribution among multiple beneficiaries, which can have estate tax benefits. 

Is a testamentary trust legally binding?

Yes, a testamentary trust is legally binding. Once probate court validates the will and the trust is set up, the trustee is legally obligated to manage the trust assets for the beneficiaries' benefit according to its terms.

Does a testamentary trust avoid probate court?

No. Unlike an irrevocable or revocable living trust, a testamentary trust must go through probate court as part of a will, incurring court fees over time that could eat into the trust. The probate process validates the authenticity of the will and allows the assets to move into the beneficiary or beneficiaries name(s). However, it can be a costly and time-consuming process.