Testamentary trust

A testamentary trust is a trust created by a will rather than during the grantor’s lifetime. The trust springs into existence at the grantor’s death and is funded through probate of the estate. Because it is part of the will, testamentary trusts pass through probate, making them public and subject to court oversight. They are commonly used to hold assets for minor children (bypass probate guardianship for property), for special-needs beneficiaries, or for second-marriage situations where the grantor wants to provide for a surviving spouse with remainder to children from a prior marriage.

Example: a parent with young children signs a will that creates two testamentary trusts at death, one per child, to hold inherited assets until each reaches age 30. On death, the estate is probated, and $2 million is allocated to each trust. The court-appointed trustee manages investments and makes distributions for health, education, and support until the trusts terminate.

Common mistake: relying exclusively on a testamentary trust for estate tax planning. Because the trust is created at death, it cannot receive inter vivos gifts, and the funding amount is limited to what is in the estate, not what appreciated before death.

Testamentary trusts matter at wills for families with minor children, at second-marriage planning, and at supplemental trusts for special-needs beneficiaries.