Testamentary Trust
A testamentary trust is a trust created through a last will and testament that does not come into existence until the death of the testator, at which point it becomes irrevocable and must pass through the probate process.
Exam Tip
Testamentary trust = created in WILL, effective at DEATH, requires PROBATE. Does NOT avoid probate or provide incapacity protection.
What is a Testamentary Trust?
A testamentary trust is created within a person's last will and testament. Unlike a living trust, it only comes into existence after the testator dies and the will is probated. Once created, it becomes irrevocable.
Testamentary Trust vs. Living Trust
| Feature | Testamentary Trust | Living Trust |
|---|---|---|
| When created | At death (through will) | During lifetime |
| Probate required | Yes | No (properly funded) |
| Privacy | Public record | Private |
| Upfront cost | Lower | Higher |
| Incapacity planning | No protection | Built-in protection |
Common Uses
| Purpose | How It Works |
|---|---|
| Minor children | Hold assets until child reaches specified age |
| Spendthrift protection | Protect beneficiaries from creditors |
| Special needs | Provide for disabled beneficiaries |
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Related Terms
Irrevocable Trust
An irrevocable trust is a legal arrangement where the grantor permanently transfers assets out of their estate into a trust that generally cannot be modified, amended, or terminated, providing potential estate tax benefits and asset protection.
Grantor Trust
A grantor trust is a trust where the creator (grantor) retains certain powers or interests that cause the trust income to be taxed to the grantor personally rather than to the trust, making the trust a "disregarded entity" for income tax purposes under IRC Sections 671-679.
Probate
Probate is the legal process through which a deceased person's will is validated by a court, debts are paid, and remaining assets are distributed to beneficiaries, typically taking several months to over a year and involving court supervision.