Testamentary Trust
Estate planningGlossary term
Definition
A trust that is created through the terms of a will and only takes effect after the will-maker's death and the completion of the probate process. Testamentary trusts are commonly used to manage assets for minor children, ensure a surviving spouse is provided for, or control distributions to beneficiaries over time. Unlike living trusts, testamentary trusts do not avoid probate since they are established through the will itself.
Related terms
- TrustA legal arrangement in which one party, called the trustee, holds and manages assets on behalf of another party, known as the beneficiary. Trusts can be used to control how and when your assets are distributed, potentially reduce estate taxes, and avoid the probate process. There are many types of trusts, each designed to address specific financial and estate planning goals.
- WillA legal document that outlines how you want your assets distributed and your affairs handled after your death. A valid will typically names an executor to carry out your wishes, designates beneficiaries to receive your property, and can also name guardians for minor children. Without a will, state laws determine how your estate is divided, which may not align with your preferences.
- Revocable TrustA trust that can be modified, amended, or completely revoked by the person who created it (the grantor) during their lifetime. Also known as a living trust, it allows the grantor to maintain full control over the assets while alive and provides for a smooth transfer of assets upon death without going through probate. Because the grantor retains control, the assets in a revocable trust are still considered part of their taxable estate.
- Beneficiary (Estate)A person, organization, or entity designated to receive assets from a will, trust, insurance policy, retirement account, or other financial instrument upon the owner's death. Naming beneficiaries is one of the most important steps in estate planning because beneficiary designations on accounts often override instructions in a will. It is essential to review and update your beneficiaries regularly, especially after major life events like marriage, divorce, or the birth of a child.
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