Testamentary Trusts

Like a well-structured discretionary trust, testamentary trusts are very flexible and offer beneficiaries a significant degree of asset protection.

Testamentary Trusts

What is a Testamentary Trust?

A Testamentary Trust is a type of discretionary trust set up in a Will.  It’s key benefits are:

  1. tax effeciency:
  2. asset protection ; and
  3. flexibility.

The terms of a testamentary trust can be fixed or as flexible as you want them to be. For example you can allow the trustee of the testamentary trust to decide who of the beneficiaries should receive income off the testamentary trust and how much as well as who should receive the capital of the testamentary trust at what time and in what share. The other option is that you tell the trustee of the testamentary trust exactly what they have to do and when.

Testamentary trusts have tax benefits that are significant, especially for beneficiaries who are under the age of 18 years. Each minor beneficiary can receive income of up to $18200 (at present) and any additional income would be taxed at the adult marginal tax rates.  Thus tax free (or low taxed) income could be used to, for example, pay for each of your children’s or grandchildren’s education.

Another significant benefit of Testamentary Trusts is that they provide your beneficiaries with asset protection from ‘creditors’ and to a certain degree from ‘predators’.

In New South Wales, Testamentary Trusts can run for up to 80 years from the Testator’s date of death, so their benefit can last over many generations.  Upon the Testamentary Trusts being wound up, you may allow the Trustee to nominate who among a pool of named beneficiaries will receive the capital or you may ‘harwire’ in your will who should receive the capital at that time. You may also determine the age prior to which beneficiaries are not allowed to receive capital from the Testamentary Trust.

If you would like to find out more about Testamentary Trusts or require assistance with a Testamentary Trust, Will or for any other aspect of Estate Planning please call Aitken Lawyers today on (02) 8987 0000.