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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Estate Planning

Mr. Anil Khanna, a 62-year-old businessman, has a house, a portfolio and a family business. He wants the assets managed for his minor grandchildren after his death, with a professional trustee deciding distributions as the children grow, and wants to avoid a single lump-sum transfer. Which statement best supports using a testamentary trust created through his will over a simple direct bequest?

A testamentary trust is set up through the will and begins only on the testator's death. The trustee then holds the assets and can release them in stages to minor beneficiaries, which suits the client's goal, whereas a living trust would operate during his lifetime.

  1. AA testamentary trust takes effect during his lifetime and avoids the need for probate completely
  2. BA testamentary trust comes into existence only on his death and lets the trustee hold and release assets in stages to the beneficiariesCorrect
  3. CA testamentary trust is irrevocable from the date the will is signed
  4. DA testamentary trust cannot be used for minors

Explanation

A testamentary trust is created by the will and arises only after death, so it remains revocable while he lives. The trustee can hold assets and distribute them in stages, suiting minors. It does not operate in lifetime and does not itself dispense with the will's validation process; a living trust would operate in lifetime.

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