Future Business Leaders of America (FBLA) Agribusiness Practice Test

In terms of estate planning, what is an important factor in a testamentary trust?

1. It is flexible and can be altered easily

2. It is established during the grantor's lifetime

3. It becomes effective at the grantor's death

4. It avoids probate entirely

The correct answer is: It becomes effective at the grantor's death

A testamentary trust is a specific type of trust that is created through a person's will and goes into effect only upon their death. This means that the assets intended to be held in the trust are not transferred to it until after the grantor has passed away. This characteristic is crucial for estate planning, as it allows the grantor to specify how and when their assets will be distributed to beneficiaries after their death, and provides a mechanism for managing those assets in accordance with the grantor's wishes. When establishing a testamentary trust, it operates under the rules and provisions set forth in the grantor's will, ensuring that there is a clear directive for asset management and distribution posthumously. This structure is distinctly different from other types of trusts that may be established during the grantor's life or that may have different purposes related to asset management prior to death.