July 23, 2020

A testamentary trust is one way you can provide for a loved one in your will. You may often hear about testamentary trusts being used to prevent an inheritance being lost to creditors or to save on tax. But, before you decide on including a testamentary trust in your will, there are 3 things you should know – what they are, when they are established and what types there are.

 

1. What is a testamentary trust?

A trust is an arrangement where a person (the trustee) holds assets for the benefit of another person/s (the beneficiary).

A testamentary trust is a trust set out in a person’s will. When a person dies, their will can leave a gift to a beneficiary directly or via a trust for the beneficiary’s benefit.

The will maker can set out any terms for the testamentary trust in their will – this may include restrictions on how the trust is managed or give the trustee complete discretion over how the trust is managed (e.g. how assets are distributed to the beneficiary and when).

 

2. When is a testamentary trust established?

Because the testamentary trust is set out in a person’s will it will only come into existence once the will maker has died. This means while you are able to change your will, you could remove the testamentary trust from your will or change the terms of it whenever you wish.  

 

3. Types of testamentary trusts

There are various types of testamentary trusts that can be included in a will for different purposes. Common types of testamentary trusts include:

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  1. a simple trust for a child until the child reaches 18 years of age or an older age you specify in your will;
  2. a protective trust to protect a beneficiary who may have a disability or addiction;
  3. a special disability trust for a person with a severe disability (these trusts have various financial benefits but are restrictive on what the assets can be used for); and
  4. a testamentary discretionary trust (these trusts are commonly used to provide the beneficiary with asset protection and or tax planning opportunities).  

A testamentary trust may not be appropriate for all beneficiaries so it is important to understand the advantages and disadvantages of a testamentary trust so you can decide whether it would be beneficial or not for your circumstances.  

 

The Wills & Estates Team at McInnes Wilson Lawyers is here to guide you through the estate planning process and to help you achieve your wishes. Please call us to consider if a testamentary trust would be beneficial for your circumstances on (07) 3231 0600.