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What is a testamentary trust?
It’s one of the more common types of trusts. But what is it, and is it right for your family?
If you’ve started researching estate planning, good for you. Also: You’ve no doubt come across many types of trusts — revocable, irrevocable, living trusts, special needs, and more.
One of the most common types of trusts is a testamentary trust. But what is it, and is it right for your family?
Learn more about testamentary trusts, and how you can use them to secure your estate for your loved ones.
In this article:
How does a testamentary trust work?
Creating a trust like this is done through a last will and testament. When you write your will, you leave directions on how your possessions should be distributed after your death, and when. These directions, which comprise the testamentary trust, go into effect after you die, meaning the trust itself does not exist until after your death.
In defining the trust, you will identify three parties: The grantor (typically you), the trustee (the person you believe best able to manage the trust’s assets), and the beneficiary (often a partner, spouse, or child).
Types of testamentary trusts
There are two types of testamentary trusts. Each is designed to pass on your assets in a specific way.
A separate trust is one created for a specific person. In a separate trust, the trustee holds specific assets for the person to whom you want to pass it on. This is common for people who have young children they want to divide belongings between.
A family trust is one created to leave assets to the family to manage, meaning you can leave everything or make a “pot” of assets you want to have the family divide. This type of trust is common for people who want their family to use assets to care for someone with special needs or who don’t want to decide who gets what.
Should you create a testamentary trust?
One of the main reasons to set up a testamentary trust is if you have minor children or grandchildren you want to receive your assets upon your death. A trust ensures that they will get these assets at a time in their life when you believe they will be mature enough to handle any associated responsibilities. This is because you can designate certain milestones, such as a child’s 21st birthday, as the date on which they will receive the assets.
A testamentary trust is among the simpler types of trusts.
They have no limit on the number of beneficiaries. And they do not require beneficiaries to pay income tax on income distributed via the trust. (There might be other taxes, such as capital gains taxes, to consider. Consult your financial advisor.)
They are technically considered irrevocable trusts, because they cannot be altered after a certain point in time, but that point in time is after you die, so you can make updates prior to then by updating your will.
Something to consider: A testamentary trust will not avoid the probate process. This means that there might be probate court fees associated with this process, which entails determining the authenticity of your trust and supervising the distribution of assets. In addition, the process will be less private than some other forms of trusts.
How Haven Life can help
At Haven Life, we make life insurance less hard through an easy-to-navigate online application process, affordable rates, and best-in-class customer service. But we also offer something for you while you’re still living: Haven Life Plus, a bonus rider available to eligible Haven Term policyholders.
Haven Life Plus includes a suite of no- and low-cost services, including free trust and will services from Trust & Will, including testamentary trusts. Start your journey toward peace of mind — the kind that comes with the financial protection of life insurance, and the kind that comes with estate planning — by getting a free online life insurance quote today.
About Scott NevilRead more by Scott Nevil
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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