Testamentary Trust Wills

When should I have a Testamentary Trust Will?

If you have assets (excluding superannuation) in excess of $1 million dollars, you should consider having a Will that contains a Testamentary Trust.

What is a Testamentary Trust Will?

Testamentary Trusts provide many advantages and the opportunity to maximise the potential tax efficiencies for future generations of beneficiaries, which will enhance and protect your legacy. A Testamentary Trust is a trust created within your Will where you appoint trustees and set out the terms of the trust in your Will. It is a trust that comes into effect after your death. It is designed to give the trustees great flexibility and discretion to decide how and when to distribute assets/money in your estate, to your beneficiaries.

Testamentary Trust Wills are priced from $2200 for a Single and $3300 for a Couple. We also include a free Enduring Power of Attorney when we prepare your Will.

People who have substantial assets often find it very beneficial to set up a Trust in their will.  There are two main reasons for this.  

Firstly – The Trust minimises the tax that beneficiaries will have to pay when they receive assets or money. Any income, capital gains and dividends can be distributed to your beneficiaries each year in the most tax-efficient way. Also, distributions can be made to minors under the age of 18, tax free (up to the marginal rate).

Secondly – You can protect your loved ones and your assets. You may have a child who has an addiction and the last thing you want to do is leave them a large sum of money. A Trust can drip feed money to them. If you have a child with a risky business that may go bankrupt or a child with special needs, you probably don’t want to leave them a large sum of money 'all at once' as they may not manage the money well.  If you have a child whose marriage is uncertain, you may wish to ensure money passes to your child and not to their ‘ex’ if a divorce is pending.  A Will which includes a Trust, gives flexibility to the Trustees to decide how and when to distribute money.  

As a Testamentary Trust Will is specific to your situation and can be quite complex, it takes considerable time to prepare.  Naturally, it costs more than a straightforward Will. There are also some costs involved in the administration of the Trust once you pass away as your estate needs to maintain and administer the Trust.  

The Advantage of Flexibility

A testamentary discretionary trust is established by the terms of your will and gives flexibility as to how and when your beneficiaries receive their benefits from your estate, which protects the beneficiaries’ entitlements and minimises any applicable taxation consequences for them.

This is possible because, under a testamentary trust, the assets of your estate will be held by trustees for the beneficiaries, not by the beneficiaries. This applies despite the fact that a trustee can be – and usually is – also a beneficiary of the trust. The trustees work together to control the inheritance without the assets being at any risk.

The Advantage of Asset Protection

Usually, people leave the majority of their estate to their children as the main beneficiaries. There are many situations where you may not want your child, or adult child, to receive a large sum of money as a lump sum. The trustee is able to use their discretion to decide when to distribute money in your estate. For example, you may not want money to go to a beneficiary immediately upon your death because:

• They may not be old enough to manage a large amount of money.
• They may have special needs and are not able to manage a large sum of money.
• They may have an addiction, so it would be better to give money in instalments, a little at a time, over time, and for certain purposes, rather than give a large lump sum as one payment.
• They may have a business that borders on bankruptcy.
• They may have serious marriage/relationship difficulties and you wish to protect estate money from being passed to their ‘ex’.
• They may be at risk of being sued. 

The trust structure protects the assets from any claims against the beneficiaries. Where necessary – when the appointed trustee is not the beneficiary – it also protects the trust’s assets from misuse by the beneficiaries themselves.

If a beneficiary faces bankruptcy, an asset held for that beneficiary in a testamentary discretionary trust will not be available to satisfy the beneficiary’s creditors.

Likewise, assets held in a testamentary discretionary trust are not part of the pool of assets available to be divided up in family law proceedings, in the event of a beneficiary becoming separated from a spouse or partner.

This protection extends to claims against the estates of your beneficiaries. If the assets to which they are entitled under your will are held in trust, then those assets do not form part of their deceased estates when they die and are not available to any claimant on their estate.

Testamentary trusts can also effectively protect beneficiaries from themselves. For example, if a beneficiary has an addiction, a bequest could be left in a trust which allows them to receive appropriate maintenance and treatment but does not allow them to access the capital.

The Advantage of Tax Effectiveness

If you have a substantial estate, it will be in the interests of the beneficiaries to receive money in the most tax-efficient way.

Testamentary trusts can be very tax effective. Income, capital gains and franked dividends from shares can be distributed among all beneficiaries, each year in the most tax-efficient way. For example, income can be distributed to a minor beneficiary who has no other income, rather than to their parent who is otherwise earning a high income and paying tax at the top marginal rate.

The trustees are able to distribute any income, capital gains and dividends from your estate to your beneficiaries, each year, in the most tax-efficient way.

How much does a Testamentary Trust Will Cost?

A Testamentary Trust Will is designed to be specific to your situation and can be quite complex. It takes substantially longer to prepare than a standard Will and costs more.

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Testamentary Trust Wills for Singles start at $2200 (inc gst).

We include an Enduring Power of Attorney document for free (usually $220).

Superannuation Binding Death Benefit Nominations are $165 (inc gst) per fund.

Testamentary Trust Wills for Couples start at $3300 (inc gst).

We include 2 Enduring Power of Attorney documents for free (usually $220 each).

Superannuation Binding Death Benefit Nominations are $165 (inc gst) per fund.

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What will be discussed with my lawyer when preparing a Testamentary Trust Will?

Your lawyer will ask about and advise where required:

• Details about you and your family – your full name, contact details, proof of identification, and they will need an understanding of your assets and liabilities.
• Details about your wishes – who are your beneficiaries, who are your children and loved ones, do you have any specific gifts or personal items you wish to leave to specific people or donations?
• Executors – who you wish to appoint as executor/s in your Will.
• Trustees – who are to be the trustees and principals of the trusts to be created in the Will (which come into effect on your death).
• Options about how assets might be distributed in order to ensure everyone is treated fairly and to avoid litigation after your death.

What is an Executor?

Your executor is the person who will administer your estate and carry out your wishes after you die. They may have to collect assets, pay out debts, arrange your funeral, distribute your estate according to your Will and if necessary, take or defend legal action on behalf of your estate.

You may appoint one primary executor and one substitute executor, or you can appoint more than one primary executor to act jointly if you prefer. They should be people who are able to work together.

Trustees - See our Article:  Trustees and Principals of Testamentary Trust: Who What When Why