Testamentary Trusts

Wills & Estates

Testamentary Trusts are an Estate Planning tool used to protect assets and to reduce tax paid by beneficiaries from income earned from an inheritance.

A testamentary trust is a trust created by a Will upon the death of the testator for the purpose of providing a greater level of control over the distribution of assets to beneficiaries and ideally, deriving a taxation advantage to the beneficiaries.

Not only can testamentary trusts be used to protect a beneficiary’s inheritance in the event of bankruptcy and divorce, but they can be an extremely handy tool for controlling and/or protecting the inheritance of a beneficiary who is unable to manage their own affairs due to disability, immaturity, drug or gambling addictions.

All assets (real or personal) are owned by the trust and distributed to the beneficiaries in a periodic fashion. Because of this, a claim against assets held by a beneficiary may not extend to the assets held within the trust.

FAQ's

What type of testamentary trust will suit me?

It’s important to establish the right type of testamentary trust. This requires you to determine what you want the trust to accomplish for your beneficiaries. The main type of testamentary trust is one with a fixed gift to its beneficiaries. This can provide certainty for all parties involved.

An alternative is to establish a discretionary testamentary trust that allows the person you have appointed to manage the trust to modify distributions. This can be an advantage if circumstances relating to your estate, or those of your beneficiaries drastically change.

What are the benefits of a testamentary trust?

A testamentary trust can assist you in providing for a child with special needs/disability after you pass on. Your assets will be owned by the trust and not passed directly to your children. Your trustee can ensure that the right amount of money from your estate is provided to your beneficiaries to assist them in their day to day lives.

If you have concerns over a beneficiary in your will not being able to handle large sums of money a testamentary trust will ensure they are cared for well into the future following your death.

You can also protect your assets from events that occur in your beneficiaries’ lives. For example, if you made a direct gift to a beneficiary from a will, that money may be affected by your beneficiaries bankruptcy, relationship breakdown or any legal action.

There are also tax benefits to using testamentary trusts so that your beneficiary can realise the full amount of any gift.

If you think a testamentary trust will suit you talk to one of our experts today.