what is a testamentary trust 
a testamentary trust is a trust that is established in accordance with the instructions contained in a last will and testament a trust is a fiduciary relationship that allows a trustee who is a third party to manage assets on behalf of the beneficiaries of the trust a person s will may include instructions to establish a testamentary trust so that the trustee can distribute the person s assets to the beneficiaries outlined in the will however a testamentary trust is not created until after the person has passed away also a will could have more than one testamentary trust testamentary trusts can be helpful as a part of an overall wealth management strategy since they provide instructions for distributing the assets within a decedent s estate however there are both advantages and disadvantages of testamentary trusts that should be considered before including one in a will testamentary trusts are one of the two types of trust funds allowed by canadian law the second form is the inter vivos trust understanding a testamentary trusta testamentary trust is created to manage the assets of the deceased on behalf of the beneficiaries it is also used to reduce estate tax liabilities and ensure professional management of the assets of the deceased a testamentary trust doesn t exist until the person passes away meaning the trust is essentially part of a set of instructions within a person s will to be drafted by a predetermined representative called an executor or executrix the deceased s assets will be transferred into the newly created trust only after the person has passed away a testamentary trust can be established so that the deceased s assets are paid to the beneficiaries only when certain conditions have been met for example the language within the trust may state that the assets may be accessed by a child of the deceased for educational expenses until the child reaches the age of 25 at which time the balance will be paid out a testamentary trust might also be created to manage the charitable distribution of assets in accordance with the wishes of the deceased requirements for a testamentary trusta testamentary trust usually involves three parties the grantor or trustor who creates the trust the trustee who manages the assets held in trust and the beneficiary or beneficiaries named in the will a trustor has the option of setting up a testamentary trust which will be established upon the death of the trustor the testamentary trust is a provision within the will that outlines the estate s executor and instructs that person to create the trust however the trust is not immediately established after the person s death since the will must go through the probate process probate is the legal process through a local court that verifies the authenticity of a will and the named executor or executrix a testamentary trust remains in effect until a triggering event is named in the will such as a surviving child reaching the age of 21 once the probate process has been completed the trust can be established and the executor transfers the property into the trust the assigned trustee manages the assets until the trust expires and the beneficiary receives the assets the trust s expiration date is usually tied to a specific event such as the beneficiary reaching a certain age or graduating from college until the trust expires the probate court may check in periodically to ensure that the trust is managed properly the trustor can choose anyone to act as a trustee however the trustee appointed is not obligated to take on this role and may decline the request if this happens the court may appoint a trustee or a relative or friend of the beneficiaries involved may volunteer to act as the trustee testamentary trust vs living trusta testamentary trust is a trust that is to contain a portion or all of a decedent s assets outlined within a person s last will and testament a testamentary trust is not established until after the person passes away in which the executor or executrix settles the estate as outlined in the will conversely a living trust is a trust that is established during the person s lifetime in which an appointed person the trustee is responsible for managing the person s assets for the benefit of the beneficiary or beneficiaries of the trust although the instructions for a testamentary trust are outlined while the person is still living the trust itself is not established until after the person passes away only then can assets be distributed and placed into the trust however a living trust also called an inter vivos trust allows for more involvement from the trustor since they re alive when the trust is established also a living trust can be revocable meaning the trustor can change it a living trust can also be irrevocable meaning it cannot be changed once established however a testamentary trust cannot be revocable and is typically established as irrevocable since the trustor has passed away advantages and disadvantages of a testamentary trusta testamentary trust has both advantages and disadvantages although a testamentary trust can be an effective estate planning tool whether it s beneficial or not for a person s financial situation can depend on several factors a testamentary trust can be helpful if the decedent such as a parent has young or minor children and want their assets distributed to them if they pass away prematurely a parent s testamentary trust can be established with instructions that the funds would only be distributed to the beneficiaries following a specific milestone for example funds from the trust would not be distributed to a decedent s children until they turn 18 years of age another advantage to a testamentary trust is that it can be modified while the person is still alive since the trust has not come into existence yet in other words a testamentary trust is essentially a revocable trust since a will can be changed at any time before a person passes away in some cases parents of young children might not have substantial financial assets or perhaps a couple may not be able to afford the cost of establishing a living trust instead they can create a testamentary trust within their will which would only come into effect if they passed away although there s still a cost to create a will the cost of the testamentary trust would come out of the decedent s estate avoiding the expense of creating a trust while still alive if it turns out that later in life they can afford to establish a trust the testamentary trust instructions can be removed from the will and a living trust can be established instead a major disadvantage of a testamentary trust is that it does not avoid probate which is the legal process of distributing assets through the court in other words the executor or executrix must go to the local court with the decedent s will and testament and other documents to prove that they have the right to distribute the decedent s assets and establish the testamentary trust the probate process is necessary to move the assets into the beneficiary s name which can take several months to complete since the testamentary trust would not be established until after the person passes away and the probate process has begun the beneficiaries of the decedent s assets may not receive their assets for several weeks or months another disadvantage of a testamentary trust is that since it must go through probate it becomes a public record as a result the beneficiaries of the testamentary trust would also be a public record there could also be confusion or a lack of clarity within the will and after a person passes away the testamentary trust may not be established properly by not establishing the trust when the person is alive such as the case with a living trust there is a risk that certain details could be overlooked and the wishes of the deceased are not properly executed assets can be distributed to minors after they reach a certain age instructions can be changed while alive this can be a low cost option if money is tight while still living a testamentary trust does not avoid probate with probate the deceased s assets are public record risk exists that the trust may not be exactly as the deceased wanted 