Why you should have a Testamentary Trust Will

Testamentary Trust Wills

Testamentary Trust Wills are an uncommonly known instrument that are available to anyone who is minded to bolster the likelihood of their final wishes being carried out.

A Testamentary Trust Will operates in conjunction with your Will in providing your executor(s) with added safeguards and flexibility to carry out your final wishes which is described in further detail below.

In short, there are many factors as to why you should be serious consider a Testamentary Trust, as better alternate to a standard Will, based upon the following reasons:

  • optimal flexibility, superior asset protection from third parties, and tax planning advantages.
  • greater control over estate planning and distribution to beneficiaries compared to simple wills.
  • protecting assets from divorcing spouses and separating partners of your children (or other beneficiaries).
  • protecting assets from creditors of your children (e.g. a child in bankruptcy).
  • tax benefits.
  • flexibility for asset distribution in your Will.
  • ongoing asset protection for your loved ones.
  • ongoing tax advantages.

What is a Testamentary Trust Will?

A Testamentary Trust allows you to appoint a Trustee to hold your assets after your death in a type of a discretionary trust structure. This means that assets, for example, your house, shares, monies etc., do not automatically transfer to your beneficiaries in their individual name. This allows flexibility with the assets and the main benefits of a Testamentary Trust is asset protection and tax benefits.  It also acts as a barrier for any creditors lurking in the background waiting for a insolvent/bankrupt beneficiary to receive a “windfall” distribution.  Another common example is a child who is in a failed relationship which exposes the beneficiary child to a larger pool of assets for the ex-partner to share in.

Benefits of making a Testamentary Trust

If your beneficiaries are minors or your children, you have the ability to ensure that your beneficiaries do not have control of their trust until a reasonable age such as 21 or 25 years of age. This allows the benefit of your appointed trustee to ensure the assets are managed appropriately while the beneficiaries are of a younger age. Having your assets in a Testamentary Trust also prevents future creditors from accessing the assets as they do not form part of the beneficiaries’ personable assets.

For example, if your beneficiary defaults on a loan or mortgage, the creditor cannot recover any loss from the Testamentary Trust.

There is also a discretionary version of this type of Will, which is known as a Testamentary Discretionary Trust. A Testamentary Discretionary Trust will have a trustee or trustees, a range of discretionary beneficiaries, such as spouse, children, grandchildren, and in some cases an appointor (e.g. your spouse) who controls the trustee/s. It is the trustee who determines which of the beneficiaries, if any, receive any assets (income or capital) from the testamentary trust, and also the amount of any assets they are to receive. Assets which are left to children through a Testamentary Trust must eventually pass to them.

We often work with accountants in devising the most appropriate estate planning regime for you to ensure that your Estate and beneficiaries will receive the maximum benefit in terms of tax related implications, limiting third-parties access to gifts, protecting underage beneficiaries interests and flexibility. There are various advantages to having a Testamentary Trust Will and these should be discussed with your lawyer and accountant to ensure that it is the best product for you.  We are happy to discuss this further with you on appointment.

If you wish to discuss further whether a Testamentary Trust would be suitable for you or your family, please make an appointment with our Valentina Najdovska and Daniel Caccamo of our Wills and Estates team on (03) 9311 8511.

You can also send us an enquiry by completing our form and we will contact you.