A testamentary trust is a vital part of estate planning and will be put into effect once a person is deceased. As an estate planner, you’ll need to fully understand what this type of trust can provide and when a testamentary trust will be needed.

Get started Start Your Estate Planning Answer a few questions. We'll take care of the rest.

What Is a Testamentary Trust?

The basic testamentary trust definition states that a testamentary trust is a trust that will only go into effect after a person has died. If your client opens one of these trusts, they will be able to include specific requirements before the assets are transferred to the beneficiary.

For example, a parent may decide to leave their home or money to their child that is under the age of 18. Since anyone under the age of 18 cannot legally own property, a testamentary trust may be created. Upon creating this trust, your client may add a requirement that allows a trustee to hold onto the asset and manage it until the child is 18, has finished college, or has met any other requirements that your client desires.

We provide templates for Estate Planning and even have a section where you can receive legal advice from lawyers when preparing a trust—or for further clarification of what is a testamentary trust.

Creating a Testamentary Trust

Under the testamentary trust definition, a trust cannot actually be put into effect until the person has died. As such, a person must include the trust within their last will and testament so that it will be created upon their death.

When creating a will, it is best for your client to add in a testamentary trust so that their assets will go to their rightful beneficiary when they expire. One of the key points to remember when creating a trust of this type is that probate will still take place. While the trust is being managed, probate will ensure that the assets left are being managed accordingly.

Explaining “what is a testamentary trust” to your clients early on in the estate planning process is advisable. It’s usually much easier to include the trust into a will when it’s being prepared and typically less costly. If your client already has a will and would like to include a testamentary trust, they can have their will amended so that the trust is now included.

Distributions of a Testamentary Trust

The terms and conditions of the trust should be overlooked and discussed with a lawyer. Creating a testamentary trust can be complex or easy depending on the needs of the individual. Not only can assets be distributed, but a testamentary trust also allows for income to be distributed. If a trust generates yearly income, from interest for example, the income that is provided could be given to the beneficiary on a monthly basis to support their needs.

Furthermore, a trust may be given out in portions or phases as certain criteria is met. A person’s age may demand one-third of the trust while other milestones would release the remaining two-thirds to the beneficiary. It should go without saying that your client should choose a person they trust to be the trustee.

Get started Start Your Estate Planning Answer a few questions. We'll take care of the rest.

Get started Start Your Estate Planning Answer a few questions. We'll take care of the rest.