Testamentary Trust
A testamentary trust is a type of legal arrangement that is established according to the terms of a will and comes into effect after the death of the person who created the will, known as the grantor or testator. This trust is distinctly different from an inter vivos trust, which is created and becomes effective during the grantor’s lifetime.
Examples of Testamentary Trusts
- Family Trust: A father’s will might create a testamentary trust to provide income to his surviving spouse for her lifetime, with the remainder going to their children after her death.
- Minor’s Trust: A mother’s will might establish a testamentary trust to manage and distribute her assets to her minor children upon reaching a specific age, such as 21.
- Charitable Trust: An individual’s will might specify that a portion of the estate is put into a trust to support a charitable foundation or cause after their death.
Frequently Asked Questions
Q: How does a testamentary trust get created?
A: A testamentary trust is created through the instructions set forth in a person’s will. It only comes into existence after the death of the individual and after the will has gone through the probate process.
Q: What is the main advantage of a testamentary trust?
A: The main advantage is control. The grantor can determine how and when beneficiaries receive assets, which can be particularly beneficial for minor beneficiaries or those with special needs.
Q: Who can be a trustee of a testamentary trust?
A: The grantor can appoint a trusted individual, financial institution, or professional fiduciary as the trustee to manage the trust according to the will’s instructions.
Q: Are assets in a testamentary trust subject to probate?
A: Yes, because the trust is part of the will, the assets must go through probate before the trust becomes active.
Q: Can a testamentary trust be changed after the grantor’s death?
A: No, once the grantor has passed and the will goes through probate, the terms of the trust are generally fixed and cannot be changed.
- Will: A legal document that sets forth how an individual’s property and affairs should be handled after their death.
- Grantor/Testator: The person who creates the will and establishes trusts.
- Inter Vivos Trust: A trust that is created and becomes effective during the grantor’s lifetime, as opposed to a testamentary trust.
- Beneficiary: A person or entity entitled to receive benefits from a trust.
- Probate: The judicial process through which a will is proved valid or invalid.
Online References
Suggested Books for Further Studies
- “Wills, Trusts, and Estates” by Jesse Dukeminier, Robert Sitkoff, James Lindgren.
- “Make Your Own Living Trust” by Denis Clifford.
- “The Complete Book of Wills, Estates & Trusts” by Alexander A. Bove Jr.
Fundamentals of Testamentary Trusts: Estate Planning Basics Quiz
### What is a testamentary trust primarily established by?
- [ ] A family agreement
- [x] A will
- [ ] A power of attorney document
- [ ] A revocable living trust
> **Explanation:** A testamentary trust is established by a will and becomes effective upon the grantor's death.
### When does a testamentary trust take effect?
- [ ] During the grantor's lifetime
- [ ] Immediately upon creation
- [x] After the grantor's death
- [ ] When the beneficiary reaches legal age
> **Explanation:** A testamentary trust takes effect after the grantor’s death and the will has gone through the probate process.
### Who generally manages a testamentary trust?
- [ ] The grantor
- [ ] The probate court judge
- [x] A trustee appointed by the grantor
- [ ] The primary beneficiary
> **Explanation:** A trustee appointed by the grantor in the will manages the testamentary trust.
### Are assets in a testamentary trust subject to probate?
- [ ] No, they bypass probate entirely
- [x] Yes, they must go through probate
- [ ] Only if the estate value exceeds a certain limit
- [ ] Only for minor beneficiaries
> **Explanation:** Assets in a testamentary trust must go through probate as the trust itself is part of the will.
### Can the terms of a testamentary trust be altered after the grantor's death?
- [ ] Yes, by the executor of the will
- [ ] Yes, by the probate court
- [ ] Yes, if all beneficiaries agree
- [x] No, once established, the terms are generally fixed
> **Explanation:** The terms of a testamentary trust are generally fixed and cannot be changed after the grantor's death.
### What is a common use of a testamentary trust?
- [ ] To manage business operations
- [ ] To bypass probate
- [x] To control the distribution of assets to beneficiaries
- [ ] To grant power of attorney
> **Explanation:** Testamentary trusts are commonly used to control the distribution of assets to beneficiaries, particularly minors or those with special needs.
### What must happen before a testamentary trust is activated?
- [ ] Approval by a financial advisor
- [x] Probate of the will
- [ ] Consent of all listed beneficiaries
- [ ] Filing with the state trust registry
> **Explanation:** Before a testamentary trust is activated, the will must go through the probate process.
### What type of documents is an inter vivos trust created with?
- [x] Documents other than a will
- [ ] A codicil to the will
- [ ] A testamentary note
- [ ] Estate resolution documents
> **Explanation:** An inter vivos trust is created with documents other than a will and takes effect during the grantor’s lifetime.
### Who are the typical beneficiaries of a testamentary trust?
- [x] Family members and minors
- [ ] Creditors of the estate
- [ ] The grantor’s business partners
- [ ] The local government
> **Explanation:** Typical beneficiaries of a testamentary trust include family members and minors, who may need structured financial management.
### Why might a grantor choose a testamentary trust over an inter vivos trust?
- [ ] For immediate asset distribution
- [x] To maintain control over assets until death
- [ ] To lower administration costs significantly
- [ ] To avoid the need for a will
> **Explanation:** A grantor might choose a testamentary trust to maintain control over the assets until their death, as the trust becomes effective only after their passing.
Thank you for exploring the concept of testamentary trusts with us, reviewing key definitions, and challenging yourself with our quiz. Continue to enhance your understanding of estate planning and trust management!
