Future Business Leaders of America (FBLA) Agribusiness Practice Test

When does a testamentary trust become effective?

1. Immediately upon creation

2. Upon the grantor's decision

3. At the grantor's death

4. Once the trust is fully funded

The correct answer is: At the grantor's death

A testamentary trust is a specific type of trust that is created according to a person's will and comes into effect only after that person's death. This means that the provisions and assets placed into the trust are managed based on the instructions laid out in the will, and the trust can begin its function only when the grantor, or the person who created the will, passes away. Once the grantor dies, the trust is funded according to the terms specified in the will, and then it can serve its purpose, which might include managing the assets for beneficiaries until they reach a certain age or for other specified reasons. This characteristic of testamentary trusts distinguishes them from living trusts, which become effective as soon as they are created and funded during the grantor's lifetime. Therefore, the notion that the trust is activated upon the grantor's death is fundamentally what defines a testamentary trust. Thus, the correct answer reinforces the essential nature of these trusts in estate planning.