Testamentary trust
A trust that does not exist until death — created under a will or by a formula in an RLT when the grantor dies. Used for staged inheritances, spendthrift protection, and bloodline control.
| Facet | Detail |
|---|---|
| Also called | Trust under will, sub-trust at death, children's trust |
| A-B / A-B-C role | Bypass and QTIP are often testamentary sub-trusts of an RLT |
| When created | At grantor's death |
| Revocable | N/A — becomes irrevocable at death |
| Inter vivos / testamentary | Testamentary |
| Typical beneficiaries | Children, grandchildren, or spouse per terms |
| Primary purpose | Control timing of distributions; creditor/divorce protection |
| Marital deduction | Only if structured as marital/QTIP share |
| Uses estate exclusion | Yes if funded as bypass sub-trust |
| In survivor's estate | Depends on sub-trust type (bypass: no; QTIP: yes) |
| Basis step-up | At grantor's death when trust is funded |
| Income tax | Simple or complex trust — Form 1041, K-1s to beneficiaries |
| Crummey powers | No (funded at death, not by lifetime gifts) |
| GST / dynasty | May be GST-exempt if exemption allocated on Form 706 |
| Spendthrift | Common — limits beneficiary creditors' access |
| See-through (IRA) | Conduit or accumulation variants possible if drafted for SECURE Act |
| Key tradeoff | Post-death control vs ongoing trustee and 1041 compliance |
These trusts matter when federal and/or Illinois estate tax is a concern. Illinois has a separate $4M exclusion that is not portable — bypass planning often matters even when federal tax is zero.