Testamentary Trusts
A Testamentary Trust is a Trust created within a Will.
Creating a Testamentary Trust within your Will can sometimes allow a more effective strategy to leave assets to a person instead of making the gift directly.
When you are making a Will, whether or not it includes a Testamentary Trust, you appoint someone to act as an executor who carries out the important role as your legal representative after your death.
You will also appoint a trustee (usually the same person as the executor) who will hold monies and other assets on behalf of the beneficiaries and make distributions at appropriate times. The role of a trustee may last for many years particularly if they are holding monies on behalf of a minor beneficiary until they come of a certain age.
The trustee appointed to a Testamentary Trust will have the power to distribute monies and assets that pass into that trust, to the beneficiaries in any way they choose.
Advantages of a Testamentary Trust
Testamentary Trusts can be used to protect assets and potential beneficiaries from losing their inheritance to creditors, litigants, a spouse or partner in the breakdown of a relationship and potential future negligence claims.
One of the most significant advantages to establishing a Testamentary Trust within your Will is that your trustee has powers which assist to maximise the benefit your whole family receives from your assets, by taking into consideration greater tax burdens which some beneficiaries might face.Tax must be paid on any income or interest earned from investments using moneys received from a deceased estate at the beneficiary’s own marginal tax rate.
For example, if interest of $40,000 is earned through investments made from estate monies valued at $500,000 a beneficiary may pay tax on that interest of $6,600. However, if the same amount of interest was earned via a Testamentary Trust and split amongst several beneficiaries including minor children then it is possible no tax is payable.
That saving would occur in each and every year the investment is maintained. In addition to this, the tax-free threshold of minor children is significantly higher than that of distributions from discretionary or family trusts.
Other advantages of a Testamentary Trust include if you have a beneficiary, perhaps a child, who has an intellectual disability. Part of your estate could be left for their benefit in a Testamentary Trust thereby protecting your loved one from being taken advantage of.
What assets can comprise the Testamentary Trust?
Only those assets which are in a deceased’s sole name can fall into and form part of the Testamentary Trust assets.
It is therefore important for an experienced solicitor at to reflect on your personal wealth and ensure all assets, including potential estate assets such as insurance policies and superannuation benefits will be directed to your estate on death.
If you are contemplating the creation of a Testamentary Trust Will you can speak with one of Andersons’ experienced estate lawyers to ensure that it is the right model for you, that your assets will comprise part of your estate for your family to benefit from and that the right provisions for control of the Testamentary Trust and protection for your beneficiaries are incorporated.
A Testamentary Trust should only be prepared by an experienced solicitor.