What is a Testamentary Trust?

A testamentary trust is a trust created in a Will that lies dormant until the death of the testator (the person creating the Will) springs it to life.

Unlike a trust created and funded during one’s lifetime, such as a revocable living trust or an irrevocable trust, no assets are transferred into a testamentary trust until the testator dies.

A will may contain several testamentary trusts for various beneficiaries. For example, a testamentary trust can be created for the benefit of a spouse, for children, or for a disabled relative.

Leaving assets in trust for beneficiaries gives a testator the opportunity to direct how and when trust funds are distributed to the beneficiary and to control how assets remaining in the trust are disposed of after the beneficiary’s death.

For example, suppose you have minor children or adult children who are spendthrifts. Your will or trust can specify that all assets left to your children will not be distributed outright to them but rather held in trust for their benefit by trustee you choose to manage those assets. The Trustee will then be able to make distributions to your beneficiaries based on guidelines you have set.

Testamentary trusts offer multiple benefits.

They allow you to select someone you trust to manage assets for a beneficiary so that funds can be distributed according to your wishes.

Additionally, testamentary trusts typically contain spendthrift language that prohibits a beneficiary from selling, giving away, or otherwise transferring his or her interest in the trust assets, which prevents a beneficiary’s creditors from reaching the beneficiary’s interest in the trust. This provides a beneficiary with assets protection that would not be available with an outright distribution.

A testamentary trust can be created to last for a finite number of years or indefinitely.

For example, a testator can specify that the trust will terminate after a beneficiary attains a particular age, when they would have the maturity and experience to manage those assets.

A testamentary trust can also last indefinitely, and allow a beneficiary to elect to take control of the trust as trustee when the beneficiary attains a particular age.

A testamentary trust in a Will does not avoid probate. Rather, probate will be necessary to transfer assets belonging to the testator to the testamentary trust after the testator dies.

Comments

  1. Mary Leatherwood says

    Can you deed your real property into your Testamentary Trust to avoid Probate?

    Also can you deed your real property into a Special Needs Trust to avoid Probate?

    • A testamentary trust created in a Will comes to life after the Will has been probated. Therefore, deeding the real property to the testamentary trust will not avoid the need for probate.

  2. Hi Rania – thanks for the great info. As I understand it, I have testamentary trust created by my grandma in her will. She expired and the will appoints me as Trustee for trusts for my adult siblings. The will has been probated. Am I now required to create a trust legal document or instrument of some sort? Or just file for tax id numbers for each trust and open appropriate investment vehicle accounts (annuity, bonds, etc)?
    Also, I read in another article that with testamentary trusts, the Trustee is required to see the probate court regularly to ensure proper handling of the trust according to the will instructions. Is this so in Texas. If yes, do I continue to see probate court in county it was probated?

    • Hi Tina. I recommend that you consult with your probate attorney about your next steps. Provisions relating to the testamentary trust should be included in the Will and should not require additional trust documents. It will be necessary for you to obtain tax identification numbers for each trust and open appropriate accounts. In Texas, trusts are generally administered free of court supervision.

  3. When there is only one sole beneficiary, what happens when the trustee dies if the original will did not designate the beneficiary control? Does the beneficiary have any rights to control the trust?

  4. What about a testamentary trust for a spouse the is incapacitated. Where can I find an example or information regarding that.

  5. Thank you for providing this site. I am just reviewing my latest will and living trust, which were created 11 years ago. I have understood more and more as I looked thru both of them again and again this past week. Your site and the language in it have helped me even more. Thank you.

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