In case you are making a Will 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 to ensure your assets are used the way you intend them to be. You can also create multiple Testamentary Trusts under one Will.

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 ideally choose anyone as a trustee including executors of your 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.

Following are the many types of assets which can be held in a Testamentary Trust:

Investments;

Land or property;

Cash; and

Other valuable assets including paintings, furniture and jewelleries.

The benefits of using a Testamentary Trust are as follows:

Flexibility for the Beneficiaries: There is always flexibility in distribution of assets held by a Testamentary Trust, to its beneficiaries. *You can set up a Testamentary Trust to suit your own individual requirements and can also allow your children to use it for their own specific benefit.

Protection of Assets: 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 their marriage or de facto relationship.

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, the *Trust of this nature allows the trustee to hold the assets on behalf of its beneficiaries.

Income Tax Benefit: The key benefit of having a Testamentary 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 case of a Testamentary Trust, 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.

No cost for transferring your assets to your Testamentary Trust: You can transfer your assets into your Testamentary Trust without paying any Stamp Duty and Capital Gains Tax because the transfer takes place through your Will.

Superannuation and Life insurance: You can also include your 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.

Incapacity: In cases where the beneficiaries are temporarily incapacitated, the Trust instead of passing of the assets to an external agency for management, can allow the family of the beneficiaries to manage the assets for their betterment.

If you are contemplating to set up a Testamentary Trust, you can contact our team of experts at Owen Hodge Lawyers.

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