What is a Testamentary Trust?

By |2022-06-28T14:59:16+10:0015-6-22|

A Testamentary Trust is a method of gifting your assets after your death, via a Trust that is established by the terms of your Will. When your estate is ready to be administered, the Testamentary Trust comes into effect and assets are ready to be distributed to those you choose.

Do all of my assets have to go into a Trust?

No, absolutely not. In fact, that would be counter-productive in creating a good plan. We can create the best opportunities for you by considering what potential situations may arise, to give your surviving family the chance to put the best solution in place. This involves considering not only your wishes, but how those wishes might impact your family and the circumstances they find themselves in at the time of your death.

As most of us are not able to predict when our time is up, it is appropriate to plan your ‘estate’ and your ‘gifting’ for both situations – either a potential ‘imminent’ impact, or perhaps a few years down the track. Where possible we will do this for you in every scenario.

So, what does a Testamentary Trust do?

A Testamentary Trust allows your loved ones to receive some (or most, or none as the case may be) of your gifts within the form of a Trust that is controlled by those who you nominate.

  • The role of this Trust includes nominating one or more individuals to be the ‘trustee’ (let’s say, a spouse for example); and
  • A range of ‘beneficiaries’ who ‘can receive a discretionary benefit at the trustees choosing’, that being a number of ‘potential’ individuals including children, future unborn grandchildren, companies in which they have an interest, parents, aunts, uncles, cousins and more.

Why would I want this? Is this adding a complication my family doesn’t need?

Every individual, family and business is different, so no one size fits all. That is the benefit of engaging an experienced legal drafter to work with you and your other advisers (accountants, financial planners etc.), to ensure the best solution for you and for your family is reached.

We have found that the people who benefit most from a Will with detailed Testamentary Trust terms are:

  • Those with individuals who they want to benefit, but who are considered ‘at risk’ (whether due to potential financial mismanagement themselves or other threats);
  • Minors or young adults who would benefit from a steadying hand to lead them carefully into managing larger inherited sums, with mature guidance and skills;
  • Tradespeople, Professionals or Business Owners whose daily career/employment involves advising or supporting others, carrying the potential risk that your professional/trade insurance provider (or employer) will not cover you (regardless of attribution of blame);
  • Surviving spouses of a growing family with funds to distribute amongst the family, wanting to access the adult tax thresholds for distributions/maintenance obligations towards children (as opposed to paying their own rates of tax on the growth in an inherited lump sum);
  • Individuals planning for a future of investment opportunities, wanting flexibility in distributing funds amongst a range of family and business structures, and accessing any available exemptions;
  • Families wishing to create a family legacy of generational wealth transfer, charitable gift giving, and to enjoy the ease of ownership transfer that Testamentary Trusts can allow.

The list of potential benefits is broad: from asset protection, flexibility in distributing to the most tax effective person, control elements being managed and risk management steps which may help to protect funds from certain types of exposure (when managed appropriately).

Tammy Parsons is a Senior Associate in our Wills and Estate Planning team. Contact Tammy on trp@nicholsons.com.au or call (07) 3226 3968 or connect with her on LinkedIn.

Think Wills and Estate Planning. Think Nicholsons.

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