Testamentary Trusts in New York Wills: Drafting, Trustee Duties and Surrogate's Court Supervision

How a Testamentary Trust Is Different From a Living Trust

A living (inter vivos) trust is signed and funded during life. Assets are retitled into the trustee's name, and at death they pass under the trust agreement without court involvement. A testamentary trust works the other way around. Nothing is retitled during life. The will is probated, the executor collects the assets, pays debts and taxes, and then transfers the trust share to the trustee. Only then does the trust begin.

The consequence is that a testamentary trust never avoids probate. If avoiding probate is your goal, read our page on how to avoid probate in New York. If your goal is control over how an inheritance is used after you die, and you are willing to accept probate, a testamentary trust does that at a lower lifetime cost than a funded living trust, and you can change it at any time by changing your will.

The Probate Path: How the Trust Gets Funded

Because the trust lives inside the will, it inherits every requirement that applies to the will. The will must be executed under EPTL § 3-2.1: signed at the end by the testator, in the presence of at least two attesting witnesses (or acknowledged to them), with the testator declaring the document to be a will and the witnesses signing within thirty days of each other. If the will is denied probate, the trust fails with it and the property passes by intestacy under EPTL § 4-1.1.

1. Probate petition. The nominated executor files in the Surrogate's Court of the county where the decedent was domiciled. Distributees (the people who would inherit if there were no will) must be cited or must sign waivers. Our sample New York City probate timeline shows how long each stage typically takes.
2. Decree admitting the will. Once the will is admitted, the executor receives letters testamentary. The testamentary trust now exists as a matter of law, but it holds nothing yet.
3. Administration of the estate. The executor marshals assets, pays debts, files the estate tax returns (New York Form ET-706 and, if required, federal Form 706, both due nine months after death) and resolves claims.
4. Funding the trust. The executor distributes the trust share to the trustee, who by this point should hold letters of trusteeship. If the executor and trustee are the same person, the transfer is still documented, because the two roles carry different duties and different commissions.

One practical point: only assets that pass under the will can fund a testamentary trust. Joint accounts, accounts with transfer-on-death designations, retirement accounts and life insurance pass outside the will to the named beneficiary. If the plan depends on a credit shelter trust or a trust for a minor, the beneficiary designations have to be coordinated so that the trust is actually funded. We see wills with careful trust provisions that end up controlling a small fraction of the estate because the rest passed by beneficiary designation to a spouse or to a child outright.

How the Trustee Qualifies and Gets Letters of Trusteeship

A trustee named in a New York will does not simply start acting. The trustee must qualify and receive letters of trusteeship from the Surrogate's Court under Article 15 of the Surrogate's Court Procedure Act. In most New York counties the application for letters of trusteeship is made in the probate petition itself or by a separate petition under SCPA § 1502 once the will is admitted.

The court checks the following before issuing letters:

• Eligibility under SCPA § 707. A person is ineligible to receive letters if he or she is under eighteen, has been adjudicated incapacitated, is a felon, or is a non-domiciliary alien (a non-citizen living outside the United States), unless serving with a co-trustee who is a New York resident. The court may also refuse letters to a person it finds unfit because of substance abuse, dishonesty, improvidence, want of understanding or inability to read and write English.
• Oath and designation under SCPA § 708. The trustee signs an oath to faithfully perform the duties of the office and designates the clerk of the court as agent for service of process. A corporate trustee files a consent to act instead.
• Bond under Article 8 of the SCPA. A trustee is required to post a bond unless the will dispenses with it or the court excuses it. Most attorney-drafted wills waive the bond for the named individual trustees. If the will is silent, the bond premium is an annual cost charged to the trust. Courts frequently require a bond for a successor trustee the testator did not name.

Once letters issue, the trustee has the powers listed in EPTL § 11-1.1 plus any additional powers granted in the will, and must invest under the Prudent Investor Act, EPTL § 11-2.3. A trustee who acts before receiving letters exposes himself or herself to personal liability and may find that banks and brokerage firms refuse to transfer the assets.

What a Testamentary Trustee Is Paid: SCPA § 2309 Worked Example

Unless the will fixes compensation, a trustee of a testamentary trust is entitled to the statutory commissions in SCPA § 2309. There are two components.

Annual commission on principal. Each year the trustee may take a commission on the value of the principal held at the end of the year, at the following rates:

• $10.50 per $1,000 (1.05%) on the first $400,000 of principal
• $4.50 per $1,000 (0.45%) on the next $600,000
• $3.00 per $1,000 (0.30%) on everything above $1,000,000

Paying-out commission. The trustee is also entitled to 1% of any principal paid out of the trust, whether to a beneficiary during the term or on final distribution.

On a trust holding $1,000,000 of principal, the annual commission is $4,200 on the first $400,000 plus $2,700 on the next $600,000, for a total of $6,900 per year. Unless the will directs otherwise, SCPA § 2309 charges one-third of that annual commission against income and two-thirds against principal. When the trust ends and the $1,000,000 is paid to the beneficiary, the trustee may take an additional $10,000. Over a fifteen-year trust for a child, a sole individual trustee of a $1,000,000 trust that neither grows nor shrinks would be entitled to roughly $103,500 in annual commissions plus the $10,000 paying-out commission.

Two more points affect the math. First, where the principal is $400,000 or more, each of up to three co-trustees is entitled to a full commission, so naming two co-trustees of a $1,000,000 trust roughly doubles the compensation cost. Second, a bank or trust company serving as trustee is compensated under SCPA § 2312 according to its published fee schedule rather than the § 2309 rates, and that schedule is usually higher. Our page on using a bank as a trustee discusses when the added cost is worth it. Family members often waive commissions, but the waiver should be a decision made with knowledge of the work involved, not an assumption written into the will.

The New York Estate Tax Cliff in Numbers

New York imposes its own estate tax under Tax Law § 952, separate from the federal estate tax. The New York basic exclusion amount is $7,160,000 for deaths in 2025 and is indexed each January 1. New York does not recognize portability, so a surviving spouse cannot inherit the unused exclusion of the first spouse to die. The federal exemption is much higher and does allow portability, which is why many New York couples with no federal exposure still have a New York problem.

The cliff is the feature that makes planning matter. If a New York taxable estate exceeds 105% of the basic exclusion amount, the exclusion disappears entirely and the whole estate is taxed from the first dollar. For 2025, 105% of $7,160,000 is $7,518,000. A taxable estate of $7,100,000 pays no New York estate tax. A taxable estate of $7,600,000 pays tax on all $7,600,000, which under the § 952 rate table is roughly $720,000. An additional $500,000 of assets produces more than $700,000 of tax.

Consider a married couple with $14,000,000 of combined assets, half in each name, where the first spouse dies in 2025.

• Outright to spouse. The first estate pays nothing because of the marital deduction. The survivor now owns $14,000,000. Ignoring growth, when the survivor dies the entire $14,000,000 is taxed. The New York tax on a $14,000,000 estate is approximately $1,700,000.
• Testamentary credit shelter trust. The first spouse's will directs an amount equal to the New York exclusion, about $7,160,000, into a trust for the surviving spouse's benefit for life, with the remainder to the children. The first estate pays no New York tax because the trust is covered by the exclusion. The survivor has access to trust income and, if the will so provides, principal for health, education, maintenance and support, but the trust is not in the survivor's estate. At the survivor's death the taxable estate is roughly $6,840,000, which is under the exclusion. New York tax: zero.

The structure saves approximately $1,700,000 in this example. The figures depend on asset values at death and on the exclusion amount in effect that year, so the will should use a formula clause that funds the trust with the exact New York exclusion amount rather than a fixed dollar figure. For a couple with assets between one and two exclusion amounts, a disclaimer trust (a will that leaves everything to the spouse but lets the spouse disclaim into a trust within nine months under EPTL § 2-1.11) is a common alternative that preserves flexibility. Our New York estate tax cliff calculator lets you run your own numbers. Verify current figures with your accountant before relying on them.

Protective Uses: Minors, Disabled Beneficiaries, Creditors and Second Marriages

Trusts for minor children and young adults

A minor cannot receive an inheritance of any size directly. Without a trust, the Surrogate's Court appoints a guardian of the property under SCPA Article 17, the funds are typically deposited jointly with the court clerk, and the child receives everything at eighteen. A custodial account under New York's Uniform Transfers to Minors Act extends that only to twenty-one. A testamentary trust lets you name the person who manages the money, define what it may be spent on (health, education, maintenance and support is the standard formulation), and stagger principal distributions at ages you choose, commonly 25, 30 and 35. The trustee can also be given discretion to hold back distributions if the beneficiary is in the middle of a divorce, a lawsuit, a bankruptcy or an addiction.

Supplemental needs trusts

A beneficiary who receives Medicaid or SSI will lose those benefits if he or she inherits outright. A third-party supplemental needs trust under EPTL § 7-1.12, created in the will and funded with the testator's own assets, avoids that result. The statute requires that the beneficiary have a severe and chronic or persistent disability, that the will show the testator's intent to supplement rather than replace government benefits, and that the trustee be barred from making distributions that would reduce or eliminate those benefits. Because the trust is funded with the parent's assets rather than the beneficiary's, no Medicaid payback provision is required at the beneficiary's death. Our page on the benefits of a special needs trust goes into the drafting requirements in detail.

Spendthrift protection

Under EPTL § 7-1.5, a beneficiary's right to trust income is inalienable by default in New York; the beneficiary cannot assign it and creditors generally cannot reach it. Principal is different. A beneficiary's interest in principal can be assigned and attached unless the will expressly says otherwise, so a spendthrift clause covering principal must be written in. The protection is not absolute: under CPLR § 5205, a judgment creditor can generally reach 10% of trust income, and a court may reach more if it finds the income exceeds the beneficiary's reasonable requirements. A fully discretionary trust, in which the beneficiary has no right to compel any distribution, is the stronger design for a beneficiary with creditor or divorce exposure.

QTIP and marital trusts in blended families

A qualified terminable interest property (QTIP) trust pays all income to the surviving spouse for life, qualifies for the marital deduction, and passes the principal at the survivor's death to the beneficiaries the first spouse chose, usually children from an earlier marriage. The survivor cannot redirect the remainder. This is the standard tool when a testator wants to provide for a second spouse without disinheriting children from the first marriage, and it pairs with the credit shelter trust described above.

Pet trusts

EPTL § 7-8.1 permits a testamentary trust for the care of a pet. The trust ends when the last covered animal dies, and the court may reduce the funding if it finds the amount substantially exceeds what is needed for the animal's care.

Drafting Failures That Produce Surrogate's Court Litigation

Most testamentary trust disputes we see in the Surrogate's Court trace back to a drafting problem rather than a dishonest trustee. The recurring ones:

• An unascertainable distribution standard. Language such as "for the beneficiary's comfort and happiness" invites a fight over every distribution. A standard tied to health, education, maintenance and support gives the trustee and the court something to measure against.
• A trustee-beneficiary with unlimited discretion. EPTL § 10-10.1 bars a trustee from exercising a discretionary power to distribute principal or income to himself or herself except under an ascertainable standard. If the will names the surviving spouse as sole trustee of a trust for the spouse's benefit and gives unlimited discretion, the statute strips the power, and the result may be a trust that cannot make the distributions the testator intended. The fix is either an ascertainable standard or an independent co-trustee who alone holds the discretionary power.
• No successor trustee. A will that names one trustee and no alternate forces a court proceeding, and often a bond, when that person declines, dies or becomes incapacitated.
• Silence on the bond. If the will does not waive the bond, the trustee must post one and the trust pays the premium every year.
• Beneficiary designations that bypass the trust. As noted above, a credit shelter trust that is never funded because everything passed by joint title or beneficiary designation saves no tax.
• A supplemental needs trust that misses the statutory language. If the will does not state the intent to supplement, or if it requires the trustee to pay for the beneficiary's support, the trust may be treated as an available resource and the beneficiary loses benefits.
• No defined ending. New York still has the rule against perpetuities, EPTL § 9-1.1. A trust must vest within lives in being at the testator's death plus twenty-one years. A will that tries to hold property "for my descendants forever" fails to the extent it violates the rule.
• Executor and trustee duties blurred. When the same person serves in both roles and never formally funds the trust, the estate stays open for years, the fiduciary cannot account properly, and beneficiaries have grounds to object to both sets of commissions.

If you are a beneficiary dealing with a trustee who is not following the will, see our pages on breach of fiduciary duty by a trustee and on a beneficiary's right to trust information.

When the Named Trustee Declines, Dies or Is Removed

A trust does not fail for want of a trustee. If the person named in the will declines to serve, he or she files a renunciation with the Surrogate's Court, and letters issue to the successor named in the will. If the will names no successor, any interested person may petition under SCPA § 1502 for the appointment of a trustee, and the court chooses, usually after considering nominations from the beneficiaries. EPTL § 7-2.3 provides that on the death of a sole trustee the trust property vests in the court, which then appoints a successor; the deceased trustee's own executor has no authority over trust assets and must turn them over.

A trustee who is already serving can be removed on petition under SCPA § 711 for grounds that include dishonesty, improvidence, substance abuse, want of understanding, removal from the state without permission, or disobedience of a court order. The court may also remove a fiduciary on its own motion under SCPA § 719 in specified circumstances, such as a trustee who has been convicted of a felony or who fails to file an account after being ordered to do so. Removal proceedings are expensive and slow. A well-drafted will reduces the need for them by naming successors in order, by allowing a majority of adult beneficiaries or an independent trust protector to replace a trustee without court involvement, and by permitting the trustee to resign on notice rather than only by court order.

Who Supervises the Trustee

The Surrogate's Court that admitted the will retains jurisdiction over the testamentary trust for its entire life. That does not mean the court watches the trustee day to day. In most counties there are no automatic periodic filings. Supervision happens in three ways. First, the trustee owes fiduciary duties under New York common law and the Prudent Investor Act, and is personally liable for breach. Second, any beneficiary (and in some cases the Attorney General or a guardian ad litem for minors) can compel the trustee to account under SCPA § 2205, and the trustee must account before final distribution either by a judicial accounting under SCPA Article 22 or informally by obtaining receipts and releases from every beneficiary. Third, a beneficiary who believes the trustee has engaged in self-dealing, imprudent investment or improper distributions can petition for the trustee's removal and for a surcharge. Our trust accounting attorneys page explains what a judicial accounting involves and how objections are litigated.

Situations We See Repeatedly

The following are recurring fact patterns from our Surrogate's Court practice, described generally and without client details. They illustrate why the drafting choices above matter.

• The nineteen-year-old heir. A single parent dies with a will leaving everything to an only child, with no trust. The child is over eighteen, so no guardian is appointed and the inheritance is paid outright. A trust to age 25 or 30, with a trusted relative as trustee, would have cost little to add to the will.
• The sibling trustee with no accounting. A parent names one child as trustee of a trust for a sibling with a disability. The trustee pays the sibling's expenses informally for years, keeps no records, and when the sibling's benefits are reviewed, Medicaid asks for the trust accounting. The trust also lacked the EPTL § 7-1.12 language. The family then faces both a benefits problem and a dispute among siblings about where the money went.
• The unfunded credit shelter trust. A will contains a formula credit shelter trust, but the couple held nearly everything jointly. At the first death, the joint assets pass to the survivor by operation of law and the trust receives almost nothing. The survivor's estate later exceeds 105% of the exclusion and pays New York tax on the entire estate.

Is a Testamentary Trust the Right Vehicle?

A testamentary trust costs less to set up than a funded living trust, requires no retitling during life, can be changed by a new will or codicil, and places the trustee under the Surrogate's Court's jurisdiction, which is a safeguard for a minor or disabled beneficiary. It also guarantees probate, with the delay, expense and public record that come with it. For many clients with modest estates and young children, the testamentary trust is the right answer. For clients with real property in more than one state, privacy concerns or family members likely to contest, a revocable living trust with the same protective provisions is often better. We lay out the trade-offs on our testamentary trust advantages and disadvantages page and on our New York will attorney page.

Frequently Asked Questions

Does a testamentary trust avoid probate in New York?

No. The trust is created by the will and funded by the executor, so the will must go through probate in the Surrogate's Court before the trust receives anything. A testamentary trust controls what happens to assets after probate; it does not bypass probate.

Can a testamentary trust be changed after the testator dies?

Not by the beneficiaries or trustee on their own. The person who created it is dead, so the consent procedure of EPTL § 7-1.9 is unavailable. Changes require a Surrogate's Court proceeding for construction or reformation, or, where the trustee has the necessary discretion, a decanting under EPTL § 10-6.6, which lets the trustee appoint the assets to a new trust with different administrative terms. Beneficiaries generally cannot terminate the trust early if doing so would defeat a material purpose, such as spendthrift protection.

Who supervises the trustee of a testamentary trust?

The Surrogate's Court that probated the will retains jurisdiction. Beneficiaries can compel an accounting under SCPA § 2205 and can petition for removal under SCPA § 711. The trustee is also bound by the Prudent Investor Act and is personally liable for losses caused by breach of duty.

How long can a testamentary trust last in New York?

As long as the will says, subject to the rule against perpetuities in EPTL § 9-1.1: interests must vest within lives in being at the testator's death plus twenty-one years. In practice, trusts for children end at a stated age, supplemental needs trusts last for the beneficiary's lifetime, and marital trusts last for the surviving spouse's lifetime.

Does the trustee have to be a New York resident?

No, with one exception. A non-citizen who lives outside the United States is ineligible under SCPA § 707 unless serving with a co-trustee who is a New York resident. A United States citizen living in another state may serve alone, though the court has discretion to require a bond.

Does the trustee file a separate tax return?

Yes. Once funded, the trust is a separate taxpayer. The trustee obtains an EIN and files federal Form 1041 and New York Form IT-205 each year the trust has income. Income distributed to beneficiaries is generally taxed to them; income retained is taxed to the trust at compressed brackets.

Can the executor and the trustee be the same person?

Yes, and it is common. The person must still qualify separately for each office, receives separate letters, and is entitled to separate commissions under SCPA § 2307 as executor and SCPA § 2309 as trustee. The executor should formally transfer the trust share and document it, rather than simply continuing to hold the assets under letters testamentary.

Speak With a New York Testamentary Trust Attorney

We draft wills with testamentary trusts for parents of minor children, families with a disabled member, married couples with New York estate tax exposure and clients in second marriages. We also petition for letters of trusteeship, prepare and defend trust accountings, and represent beneficiaries in proceedings against trustees in the Surrogate's Courts of New York City, Long Island and Westchester. If you are planning a will, or you have been named trustee or beneficiary of a testamentary trust, call 212-233-1233 or email [email protected] to schedule a consultation.