What is a testamentary trust?

What is a testamentary trust?

• A. A trust created during the lifetime of the trustor
• B. A trust established upon the trustor's death through a will
• C. A trust funded by a life insurance policy
• D. A trust created by a court order

Answer: (B)

A testamentary trust is indeed established upon the trustor's death through a will. This type of trust becomes effective only after the individual who created the trust (the trustor) passes away. In the will, the trustor can specify how their assets are to be managed and distributed to beneficiaries after their death, making it an essential tool for estate planning. When the trustor dies, the will goes through the probate process, and it is during this process that the testamentary trust is created and funded with assets from the estate. The purpose of a testamentary trust can vary, such as providing for minor children, managing assets for beneficiaries who may not be financially responsible, or even reducing estate taxes. This distinguishes a testamentary trust from other types of trusts. Trusts created during the trustor's lifetime are known as living trusts, and those funded by a life insurance policy are especially tailored to manage the insurance proceeds. A court-created trust might occur under different circumstances, often related to legal determinations rather than the explicit intent of a trustor expressed in a will.

A testamentary trust is indeed established upon the trustor's death through a will. This type of trust becomes effective only after the individual who created the trust (the trustor) passes away. In the will, the trustor can specify how their assets are to be managed and distributed to beneficiaries after their death, making it an essential tool for estate planning.

When the trustor dies, the will goes through the probate process, and it is during this process that the testamentary trust is created and funded with assets from the estate. The purpose of a testamentary trust can vary, such as providing for minor children, managing assets for beneficiaries who may not be financially responsible, or even reducing estate taxes.

This distinguishes a testamentary trust from other types of trusts. Trusts created during the trustor's lifetime are known as living trusts, and those funded by a life insurance policy are especially tailored to manage the insurance proceeds. A court-created trust might occur under different circumstances, often related to legal determinations rather than the explicit intent of a trustor expressed in a will.