A Testamentary Trust is a Trust created by a Will which comes into effect upon the death of the will maker. Generally, it is discretionary in nature. The rules which govern the Testamentary Trust are set out in the Will.
The popularity of this type of Will has grown in recent years primarily because the Will allows the will maker to exercise control over the future use and application of their assets, unlike a traditional Will where the assets pass directly to the beneficiary personally.
The benefits can be summarised as follows:-
- Protection of Assets
Assets held in a Testamentary Trust are protected from a beneficiary’s creditors and claimants, thus avoiding loss of an inheritance due to the bankruptcy or adverse financial circumstances of a beneficiary.
- Family Law Act Property Settlements
Assets held in a Testamentary Trust are protected against such litigation by your children’s spouses and also your partner’s spouse should he/she re-partner following your death. An inheritance held in a Testamentary Trust is unlikely to be the subject of a Family Court Order, although it may be regarded as a financial resource and impact upon the terms of a property settlement.
- Tax Advantages
These can be significant, particularly in regards to children. Income distributed by a Testamentary Trust to a minor beneficiary is taxed at adult marginal tax rates rather than penalty rates.
- Preservation of Centrelink Benefits
Assets in a Testamentary Trust are not currently taken into account by Centrelink with regards to pension eligibility of a beneficiary. However, the income distributed by the Testamentary Trust is taxable in the hands of the beneficiary.
- Beneficiaries with Disabilities
A Testamentary Trust is particularly beneficial for intellectually disabled beneficiaries and those beneficiaries with illnesses, addiction problems or other weaknesses which could result in the loss or dissipation of an inheritance.
- Increase in Asset Pool
Additional assets can be acquired and held by a Testamentary Trust once it has been established, thus maximising the benefits which flow through the Testamentary Trust to beneficiaries.
- Duration of Trust
A Testamentary Trust can endure for up to 80 years, hence protection is provided to the beneficiaries for a lengthy period of time.
It is impossible to predict what the future holds for us or the beneficiaries of our estates. However, by making a Will containing a Testamentary Trust, we can at least control the future use and application of our assets in order to protect and preserve them for our future generations.
For any enquiries regarding Attwood Marshall Lawyers Wills and Estates services, please contact the Department Manager, Donna Tolley on 07 5506 8241 or freecall 1800 621 071 or email dtolley@attwoodmarshall.com.au.
