A testamentary trust is a type of trust that does not go into effect until the grantor (the person who made the trust) dies. Usually this type of trust is made within a will – often to create a trust for minors. When a trust is included in a will, the will goes into effect immediately, but the trust is not actually created until after the death of the will maker.
Non-testamentary trusts take effect when the grantor signs the trust, has it notarized, and transfers property into the trust. This type of trust is called an "inter vivos" or "living" trust because it goes into effect during the grantor's lifetime. Inter vivos trusts can be either revocable or irrevocable.
In contrast to these types of trusts, a testamentary trust does not take effect until death of the trust maker, and at that time the trust becomes irrevocable. Because it does not take effect during the grantor's lifetime, the grantor is free to make changes to the trust until his or her death.
Testamentary trusts are most often used to leave money to children through a will. This type of trust is called a "child's trust."
Minors cannot receive substantial gifts directly; money or property left to minors must be managed by an adult. Using testamentary trust in a will allows you to leave a gift to a child and also to name a trusted guardian as trustee of that gift. The trustee manages the trust until the minor becomes old enough to manage the property him or herself. (The age at which the minor receives the property outright is determined by the trust maker and is stated in the trust.)
EXAMPLE: Mark and Sheila are a couple with one young child, Alice. When they make their wills, they leave everything to each other. They also name Alice as an alternate, in case they die at the same time. However, because Alice is a minor, they need to figure out who will manage Alice's property until she is old enough to do it herself. After considering the options, they decide to include a child's trust in their will, and they name Mark's sister Jenny as trustee. If Mark and Sheila die, their property will pass into the child's trust, and will be managed for Alice by Jenny.
You can also use a testamentary trust to leave property to children as a group in a "pot" trust. And while leaving property to children through a testamentary trust can be a practical way to leave gifts to children through a will, it is not the only way – for example, in most states you could use the Uniform Transfers to Minors Act instead.
Learn more about Leaving an Inheritance for Children.
See Sample Children's Trusts will provisions.
The primary purpose of most living trusts is to avoid probate. Unlike living trusts, testamentary trusts do not avoid probate. A testamentary trust created through a will must go through probate before the trust is created. The executor will probate the will and as part of the probate process, he or she will create the trust.
Learn more about Executors and Probate and How to Avoid Probate.