Do I need a Testamentary Trust?

A testamentary trust is a discretionary trust set up in your Will to protect assets and to provide tax advantages for future generations. At the time of death, the beneficiary may opt to take their inheritance as an outright lump sum or opt for the testamentary trust to come into force.

How does a testamentary trust work?

The Will creates the Testamentary Trust for a period of up to eighty years. The wording determines who is to be the trustee(s) and the beneficiaries and what is to be the trust property. The trustee should be someone who is diligent and will be prudent in administration of the testamentary trust.

The testamentary trust will come into operation upon death. All, or part of the estate, as prescribed by the Will, will be transferred to the trustees to hold on trust for the beneficiaries. The Trustee will manage, and then distribute, the trust property at their discretion in accordance with the terms of the Testamentary Trust.

A beneficiary can be the trustee of their own testamentary trust and be in control of distributions of the capital or income of the trust.

Advantages

For minor beneficiaries under the age of 18, distributions can be made tax free up to the $6000.00 threshold. Another advantage for vulnerable persons who need protection from business creditors and gold-digging Spouses or who may be unable to mange their financial affairs due to age (elderly or minors) or disability (financial, physical or mental) is asset protection.

Disadvantages

Annual tax returns may be required to be lodged and there are accounting and legal fees involved.

Should I make a testamentary trust?

If your beneficiary is receiving at least $100,000 and you are concerned for their future welfare as a vulnerable person then a testamentary trust may be appropriate.

For more information on testamentary trusts, superannuation, Wills, and other testamentary documents contact our Wills & Estates team for advice and assistance. Email us if you would like us to contact you.

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