Posted Tuesday 22nd November 2016

Protection from Beyond the Grave: Testamentary Trusts

Today we look at some of the benefits of establishing a testamentary trust under your Will.  We truly believe that they can deliver outstanding long term benefits to your children upon your passing and that they are an essential estate planning tool for the savvy individual.

What is a testamentary trust?

A testamentary trust is just like any other family or discretionary trust established during your lifetime except that it is established under your Will and in the event of your death your assets (or such of them that you choose) are placed into the trust, without the tax consequences of undertaking such a transfer during your lifetime.

Your will can also create multiple testamentary trusts so that each of your children is able to control and manage a trust that is established for the sole benefit of them and their family.

Trusted third parties, whether professional advisors or family members can be appointed to manage and control the trusts, unless and until the time is right for your children to take control of them.

Benefit 1:  Passing on assets to the right people

Perhaps your son Tyrone isn’t very responsible with his money.  Perhaps your daughter Sally just has the habit of meeting the wrong guys.  Or perhaps they are in business for themselves or have careers that potentially expose them to a high level of liability.

Whatever the reasons, a properly structured testamentary trust can assist your children by:

  • Preventing unrelated and potentially undeserving third parties from getting hold of half of your child’s inheritance in a marital split;
  • Preventing the assets being taken by creditors in the event of your child’s bankruptcy – your children do not “legally” own them so the trustee in bankruptcy and hence creditors have no rights.

Benefit 2:  Long term protection of capital

In line with the first benefit set out above, a testamentary trust can ensure that not only can your children benefit from income from the trust throughout their lives, but by prudent management from professional trustees, the assets of the trust can be maintained and capital preserved:

  • To ensure the fruits of your labour are not simply frittered away by young adults;
  •  Ensuring that whatever happens in their lives there is a safety net for your children or grandchildren;
  •  Providing various benefits, such as the maintenance of disabled children or grandchildren, or for education or other purposes.

Benefit 3:  Your children’s inheritance is placed into a tax advantageous threshold

Putting property, shares, and other investment assets into a trust, you can assist your children in paying less tax on the income from the trust. 

Trusts have significant tax benefits, including:

  • The ability to divert income to family members to take advantage of lower tax thresholds, such as the non-working children, their spouses or studying non-working adult children; and
  •  the benefit of a 50% capital gains tax discount from any future sale of the asset.  

This can save your children many thousands of dollars in tax over the lifetime of the trust.

Benefit 4:  Special family assets

By placing assets into a testamentary trust via your will, such as the treasured family holiday home, you are able to create an environment where it can be controlled, maintained, managed and shared for the good of all family members.


A simple testamentary trust will can start from only $1,000 plus GST (for an individual), so the costs are not at all prohibitive.  

Tags: Wills, Estate Planning, Testamentary Trusts, Structuring, Asset Protection, Trusts, Family Trusts, Discretionary Trusts

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