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A Testamentary Trust is a trust that will hold the Will-makers’ assets on behalf of the nominated beneficiaries in the event of the Will-makers’ death. A testamentary trust is established under a valid Will which can include restrictions on any or all of the beneficiaries or conversely, grant them extensive control.
As the estates' assets are not held directly by the beneficiaries they are less likely to come into consideration in events such as divorce, de-facto separation, or remarriage. A trust also helps to insulate against other 3rd party claims brought on by bankruptcy or legal litigation.
A Testamentary Trust allows benefits from the trust to be distributed to its beneficiaries in the most tax-effective manner. This can include considerable reductions in the total tax payable when distributions are made to beneficiaries under the age of 18 as well as minimising capital gains tax losses.
A Testamentary Trust is particularly beneficial for beneficiaries who are children, have a mental disability, or any other reason where the Will-maker may have concerns about the loss or dissipation of an inheritance. A trust will allow these beneficiaries to still receive the benefits intended for them but under the discretion of the trustee.
The inclusion of a Testamentary Trust in a Will provides the Will-maker with a greater level of control over exactly who is entitled to receive benefits from their estate and when. The ability to appoint an independent Trustee to manage the trust can help to further ensure the Will-makers' wishes are carried out as planned.
Government benefits such as Centrelink and the Age Pension do not take assets held by testamentary trusts into account when calculating eligibility which may otherwise prevent or limit these payments.
Generally, Superannuation and insurance proceeds are distributed according to the rules of the fund or policy. A Will-maker may choose to have these proceeds directed into a Testamentary Trust so that these funds can be covered by all of the benefits listed above.
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