A testamentary trust is a trust created inside your will that only comes into existence after you die and your will goes through probate. Unlike a living trust, it does not avoid probate, but it lets you control how and when beneficiaries, often minor children, receive their inheritance.
Key Takeaways
- A testamentary trust is written into your will and does not exist until after your death.
- Because it is created through a will, it does not avoid probate.
- It is commonly used to hold an inheritance for minor children until they reach a specified age.
- The named trustee only takes on duties once the will is probated and the trust is funded.
What Is a Testamentary Trust?
A testamentary trust is a trust whose terms are written directly into a will rather than in a separate standalone trust document. The Cornell Legal Information Institute's overview of a testamentary trust explains that it is created through the terms of a settlor's will and takes effect only after the settlor's death, distinguishing it from an inter vivos, or living, trust that is created and funded during the settlor's lifetime.
How Does a Testamentary Trust Actually Get Created?
The trust terms sit dormant inside your will while you are alive; nothing is funded and no trustee has any authority yet. When you die, your executor takes your will through probate, and once probate confirms the will's validity, the assets designated for the trust are transferred into it, and the named trustee then begins managing the trust according to its terms. This means a testamentary trust always requires a probate proceeding first, since the trust cannot exist until the will that creates it has been probated.
Testamentary Trust vs. Living Trust
- When it is created: Testamentary trust, at death, through probate. Living trust, during your lifetime, immediately upon signing and funding.
- Probate: Testamentary trust, requires probate to come into existence. Living trust, avoids probate for properly funded assets.
- Control during your lifetime: Testamentary trust, none, since it does not exist yet. Living trust, you typically control it as trustee while alive.
- Incapacity planning: Testamentary trust, provides none. Living trust, a successor trustee can act immediately if you become incapacitated.
See what is a living trust for the type of trust that does avoid probate, and how a trust avoids probate for why that mechanism does not apply to a testamentary trust.
Why Would Someone Choose a Testamentary Trust?
A testamentary trust is most commonly used to hold an inheritance for minor children until they reach an age the parents specify, rather than handing over a lump sum at 18. It can also be used to stagger distributions to an adult beneficiary over time, or to provide for a beneficiary who should not receive a large inheritance outright. Because it lives inside the will, it is often a simpler option for people who are comfortable with probate happening once and want the trust structure specifically for controlling distribution timing rather than avoiding court involvement.
What Are Common Testamentary Trust Structures?
A common example is a trust that holds a child's inheritance until they turn 25, releasing partial distributions at earlier milestones like 18 or 21 for education expenses. Another common structure splits an estate into equal testamentary trusts for each child, with the same trustee overseeing all of them until each child reaches the age the parents specified. These structures work well for parents who are comfortable with a one-time probate proceeding but want firm control over the timing of each child's inheritance.
What Does the Trustee of a Testamentary Trust Do?
Once probate funds the trust, the named trustee takes on the same fiduciary duties as any other trustee, managing the assets prudently and distributing them according to the trust's terms. See trustee duties and responsibilities for the baseline obligations that apply, and how to choose a successor trustee for choosing someone for this role.
If avoiding probate matters to you as much as controlling distribution timing, FastWill's trust package can combine a living trust with the same kind of staggered distribution terms.
Frequently Asked Questions
Does a testamentary trust avoid probate?
No. A testamentary trust is created through your will, and a will always requires probate. The trust itself only comes into existence once probate is complete.
Can a testamentary trust be changed after I die?
Generally no, once the will creating it has been probated, the trust terms are fixed, though some trusts include limited mechanisms like a trust protector to adjust administrative details.
Is a testamentary trust the same as a trust created in a living trust?
No. A living trust is created and can be funded during your lifetime, while a testamentary trust exists only inside your will and is not created until after probate. A living trust can also contain sub-trusts, sometimes called testamentary provisions, that function similarly but are funded through the living trust rather than a will.
Why would I choose a testamentary trust over a living trust?
Some people prefer the simplicity of a will-based plan and are not concerned about probate, using a testamentary trust purely to control how and when beneficiaries receive their inheritance rather than to avoid court involvement.
Who manages the assets before the testamentary trust is funded?
Your executor manages and distributes the estate through probate first. The trust and its trustee do not have any role until probate has concluded and the designated assets are actually transferred into the trust.
