Frei, Toronto's longest-serving player, lost his job to injury in 2012 and the fine play of Bendik this season. His US$200,000 contract expired at the end of the season but Toronto retained his rights though Thursday's first stage of the MLS re-entry process.
Frei signed a new contract with Seattle shortly after the trade.
"Joe had an opportunity to step in and prove himself this season and he did so in a big way," Toronto GM Tim Bezbatchenko said in a statement. He's still a relatively young keeper who showed he has the ability and mentality to handle a full season of MLS play.
"We are excited to watch him continue to develop his skills and be a leader on our re-shaped roster next season. We are confident that we have addressed our goalkeeper situation for the upcoming season, while adding increased roster and cap flexibility in the process."
Toronto, meanwhile, may be close to landing a new designated player. Brazilian Gilberto was said to be at the Toronto Raptors' game Tuesday night.
Bendik, 24, started 33 games for Toronto in 2013, finishing with a 6-16-11 record and four shutouts. His salary was listed at US$46,500.
Prior to being acquired by Toronto FC, he made five appearances and started in three games for Portland during the 2012 season.
Frei, 27, is Toronto's all-time leader in appearances across all competitions (99). He has a 1.54 goals-against average in 82 regular-season starts.
"Stefan is a goalkeeper we have liked for a number of years," Seattle head coach Sigi Schmid said in a statement Tuesday. "He is a quality professional who brings experience and leadership to the position. Adding Stefan at this point of his career was very attractive to us."
Toronto receives a conditional 2015 first-round MLS SuperDraft pick from Seattle.
The Sounders currently have 41-year-old Marcus Hahnemann and 26-year-old Josh Ford as goalies on their roster.
"Parting with a player of Stefan's calibre and character is always difficult, but as we move forward with our re-shaping of the club, it is important that we have increased flexibility to make additional moves. This trade provides us with that flexibility," said Bezbatchenko. "Stefan is a great player and an even better person who will always hold a special place in the club's history. We wish him all the best as he moves on to the next stage of his career."
Toronto also has goalkeepers Chris Konopka and Quillan Roberts on its roster.
On Monday, Toronto acquired Brazilian midfielder Jackson from FC Dallas in exchange for a conditional second-round pick in the 2015 draft and allocation money.