Testamentary Trusts

Testamentary trusts are trusts created within a will that are used to specify how your funds are spent. This could include leaving money until a child reaches a certain age or bestowing a family heirloom once a family member gets married.

Commonly, testamentary trusts are created to help ensure ongoing maintenance, residence, health care needs, education and daily support for loved ones. Less commonly, testamentary trusts may also provide additional benefits such as tax advantages or protecting your estate if a beneficiary is in bankruptcy.

You might want to consider creating a testamentary trust if:

- You are worried a beneficiary might be at risk from a family law claim, bankruptcy or breaking the law;
- A beneficiary has a physical or mental disability, poor judgement or an addiction;
- A beneficiary is a child under 18 years old;
- A beneficiary has a child under 18 years old;
- You have assets you would like to remain within the family; and/or
- You would like to include rules, requirements, restrictions or conditions in your will.

Including a testamentary trust in your will is usually more expensive than having a conventional will. Testamentary trusts will not prevent parties from making a family provision application (making an application to the court seeking a further portion of the deceased individual’s estate then what they were allocated under the will).

Any type of asset can be held in a testamentary trust. A nominated trustee will eventually distribute the assets of the trust to the listed beneficiaries

Any individual over the age of 18 can be the trustee of your testamentary trust, however commonly individuals select the executor of their will to be the trustee of their testamentary trust. Your lawyer, accountant or financial executor could also be appointed trustee if they are willing to take on the role.

There are several types of testamentary trusts available to suit your individual needs and requirements, but the two most common are:

- Discretionary testamentary trusts, which can be used in some situations for tax outcomes and protecting assets. Discretionary testamentary trusts are a separate trust to the deceased estate, and the trustee has the discretion to allocate the capital or income between the group of beneficiaries listed in the will; and
- Protective testamentary trusts, which are commonly created to benefit individuals who cannot manage their own affairs.