Testamentary Trust—How Does It Work?

Trusts come in several different structures. One of the biggest differences between trusts is whether they are “living” or “testamentary.” When it comes to testamentary trusts, you can create one through a will, causing it to take effect after the person who makes the will dies. These trusts can control how someone manages and distributes assets over time, helping to support minors, individuals with special needs, or beneficiaries who require guidance in managing their finances responsibly.

Massingill is a Texas-based firm that helps individuals, families, business owners, and healthcare providers plan for the future. We simplify complex legal matters, offer flat-fee pricing, and deliver practical estate planning guidance tailored to each client’s goals. Through secure online document access and convenient appointment scheduling, Massingill makes estate planning efficient, transparent, and approachable.

What Is a Testamentary Trust?

A trust is a legal arrangement in which one person manages property for another under written instructions contained in the document that creates the trust. The person who sets up the trust is the grantor. They appoint a trustee to manage trust assets, such as money or property, and follow the trust’s instructions. The grantor also selects beneficiaries to receive benefits from the trust, either through direct payments or having expenses paid on their behalf.

So, what is a testamentary trust? When a grantor creates a trust, they decide when the trust will become effective. If the grantor includes terms in the trust document that state the trust should begin after the grantor dies, they create a testamentary trust. This testamentary trust definition means people usually create testamentary trusts in their wills. The name even relates to wills—traditionally, a will was called your “last will and testament.”

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How Do You Create a Testamentary Trust?

You can create a testamentary trust by including instructions in your will that specify certain assets should be transferred into the trust upon your death. If the will names an executor, that person is usually responsible for officially creating the trust and transferring assets into it. If someone other than the named executor is appointed to manage the estate, typically referred to as an administrator, they create the trust and transfer property to it. Executors and administrators are personal representatives who may be responsible for creating a testamentary trust in accordance with a will.

The will also explains how the trust should operate once the executor funds it. That explanation creates the trust’s terms, identifying: 

• Who serves as trustee, including backup choices if the first trustee cannot serve;
• Who the beneficiaries are, and when they may receive distributions; 
• How the trustee may use trust funds, such as for education, healthcare, housing, or support; and
• When the trust ends, such as when a beneficiary reaches a specified age.

Clear instructions reduce confusion and help loved ones carry out the grantor’s wishes efficiently.

Why Might You Create a Testamentary Trust in Texas?

People often use testamentary trusts to add structure and protection to an inheritance. They offer limitations and control, like:

• Minor’s trusts—allow assets to support a child without giving full control at age 18;
• Staggered distributions—release portions of an inheritance over time;
• Special needs planning—preserve eligibility for government benefits like Supplemental Security Income (SSI) or Medicaid while offering support; and
• Creditor protection—limit a beneficiary’s direct access to assets that creditors might otherwise reach

You can use almost any property to fund a trust, such as:

• Bank or investment accounts,
• Real estate, or
• Personal property, like jewelry or vehicles.

After a person dies, their estate usually goes through probate, which is the legal process a Texas court uses to carry out the instructions in a will. Probate does not happen all at once. Instead, it unfolds in stages, and understanding those stages helps clarify when a testamentary trust actually begins.

How Do You Start a Testamentary Trust?

Because a testamentary trust does not exist until after its creator dies, the creator’s loved ones use the probate process to create the trust. Once made, they fund it by transferring assets into its name. 

Probate Portion

In general, probate involves several key steps:

• Someone takes the will to court;
• The court validates the will, confirming that it meets Texas legal requirements;
• The court appoints a personal representative, giving them legal authority to act;
• The representative inventories and gathers assets such as bank accounts, property, and personal items; and
• The representative pays debts, taxes, and expenses using estate funds.

After the personal representative completes these steps, they move the property into a testamentary trust. 

Trustee Portion

The trustee is responsible for managing the trust’s assets. Texas law imposes fiduciary duties on trustees, which require them to act honestly, prudently, and in the best interests of the beneficiaries. In practical terms, trustees must:

• Manage trust assets responsibly,
• Make distributions according to the trust’s written terms,
• Keep accurate records and provide information when required, and
• Avoid conflicts of interest.

After funding, a testamentary trust in Texas usually functions as its own taxpayer and may require a separate tax return. When a trust retains income instead of distributing it, tax rates may apply more quickly than they would for individuals, which can affect long-term planning decisions.

Talk with a Texas Estate Planning Attorney

Estate planning shapes how your loved ones receive support and guidance long after you are gone. Massingill provides flat-fee estate planning services designed to protect families and simplify the process under Texas law.
If you are considering a testamentary trust or reviewing your estate plan, contact Massingill to schedule a consultation and receive guidance tailored to your goals and circumstances.

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Joshua Massingill

Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.

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