What is a "testamentary trust"?

A testamentary trust is a specific type of trust that is established through a person's will and becomes effective upon their death. It is designed to carry out the deceased's wishes as articulated in the will, directing the distribution of the deceased’s assets to beneficiaries over time rather than in a lump sum. This type of trust ensures that the management of the estate can be tailored according to the deceased’s intentions, often providing for minors or beneficiaries who may not be financially responsible.

The correct choice emphasizes that the trust is contingent upon the individual's passing and serves as a mechanism to manage the assets according to the deceased’s instructions. Thus, testamentary trusts can be particularly useful for providing ongoing support for dependents, safeguarding assets until beneficiaries reach a certain age, or providing particular conditions for distributions tailored to specific needs or situations.

The distinction between a testamentary trust and other types of trusts, such as living trusts created during a person's lifetime, is essential in understanding estate planning. A testamentary trust only comes into existence after the individual's death, marking a significant difference in its creation and purpose compared to trusts formed while the person is alive.