Testamentary Trust

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If you are making your Last Will and Testament, and thinking of providing a specific asset and/or a designated portion of your estate, or the entire remaining balance of your estate to your loved ones after your death, you may want to consider using a Testamentary Trust. This type of trust can ensure your assets are used the way you intend them to be, and you can create multiple Testamentary Trusts under one Will.

If you need help creating this trust or with asset protection, contact the Wills and estate lawyers at Owen Hodge.

a person signing a Testamentary Trust

Testamentary Trusts are created under a Will and therefore come into effect only after the death of the person who made the Will, the testator.

The principal objective of a Testamentary Trust is to hold and manage all or some of the assets and distribute it to the beneficiaries as per the terms outlined in the Will. To manage the assets of the Trust, a trustee must be nominated.

You can choose anyone to be a trustee, including the executor of the Will or your spouse, however it should be someone whom you trust, as that the person will act in the best interests of your beneficiaries.

What is the difference between a Will and a testamentary trust?

A Will is a legal declaration by which a “testator” (Will-maker) enforces their wishes to distribute their assets upon death. It also outlines beneficiaries and an executor of a Will.

A Testamentary Trust, on the other hand, is where the assets of the Will are held and managed by the trustee.

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Who can be beneficiaries of a Testamentary Trust?

The same beneficiaries that you have outlined in your Will.

  • Investments;
  • Land or property;
  • Cash; and
  • Other valuable assets, including paintings, furniture and jewelleries.

1. Flexibility for the beneficiaries

With a Testamentary Trust, you have the flexibility to distribute the assets to the beneficiaries.

You can set up this trust to suit your own individual requirements and can also allow your children to use it for their own specific benefit.

2. Asset protection

Assets held by a Testamentary Trust are protected up to a certain level because it is held by a Trust and the assets are not owned by the beneficiaries. Therefore, the assets held by the Trust are not available to the creditors or spouse of the beneficiaries after the breakdown of a marriage or de facto relationship.

3. Protection from irresponsible beneficiaries

These kinds of Trusts are appropriate for beneficiaries who are not able to handle their share all by themselves or there is a high possibility that they spend their share irresponsibly. In such circumstances, this trust allows the trustee to hold the assets on behalf of its beneficiaries.

4. Income tax benefit

The key benefit of this kind of trust is the income tax redemption. Usually, beneficiaries  invest the funds they receive out of a normal Will to earn an extra income, and that income is added to their salary and they pay tax at usual marginal rates.

In the case of Testamentary Trusts,  the trustee distributes the income of the Trust to its beneficiaries. If the beneficiaries further distribute the funds to their children who are not working, then they can claim for income tax benefit for every child.

5. No cost for transferring assets to your trust

When using a Testamentary Trust, there are tax advantages.

You can pay your assets into this trust without paying any Stamp Duty and Capital Gains Tax because the transfer takes place through your Will.

6. Superannuation & life insurance

You can also include the accumulated balance of a superannuation fund and life insurance policy entitlements into your Testamentary Trust. It is better for your beneficiaries to receive the entitlements through the Trust and not through any other mode of payments outside the protection of the Trust.

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7. Incapacity

In cases where the beneficiaries are temporarily incapacitated, the Trust allows the family of the beneficiaries to manage the assets for their betterment (rather than relying on an external agency).

If you are contemplating setting up a Will with a Testamentary Trust or need legal advice, you can contact our team of estate planning experts at Owen Hodge Lawyers.

Can a Testamentary Trust be contested in NSW?

Yes, as a Testamentary Trust is established by a Will it can still be challenged or contested under the usual legislative provisions.

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