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What is a Testamentary Trust?

November 09, 2021

Testamentary trusts are favored by people who want to control how their beneficiaries use the assets. Learn more here.

Although dozens of types of trusts exist, the four most common are revocable, irrevocable, testamentary, and charitable trusts. While each has the same “three-parties plus assets” structure, they often serve different purposes, may go into effect at different times, and offer diverse benefits. In this blog, we discuss the ins and outs of testamentary trusts. Check out our other blogs for details on charitable, revocable and irrevocable trusts.

Testamentary trusts

A testamentary trust (a “will” trust) is one that goes into effect only after the grantor has died. At this point, the named trustee takes control of managing the trust assets until the beneficiaries are entitled to the assets under the trust’s terms. Unlike the living trust, a testamentary trust is a provision of a last will, not a separate legal document.

Testamentary trusts are favored by people who want to control how their beneficiaries use the assets. It is particularly beneficial for families that have minor children or disabled relatives who would not be ready to take control of the assets upon the death of the grantor. For example, the trust distributes a portion of the assets annually until a minor child reaches majority or an age specified by the grantor.

A testamentary trust may also provide certain tax benefits as the trustee can distribute or divide the assets in the most tax favorable manner.

The disadvantage of a testamentary trust is that because it is part of the will, it must go through probate before the trust becomes active and the beneficiaries can begin to receive the benefits.

Don’t forget to check out our blog Estate Planning: What is a Trust? which covers the basics of trusts and how they can benefit your financial situation.

Questions? Contact us today.

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