Testamentary Trusts

Testamentary Trusts

What is a Testamentary Trust?

Testamentary Trusts are complicated. In this information statement we have simplified some of the key issues surrounding Testamentary Trusts for your benefit.

  • A Testamentary Trust is a trust created under a Will.
  • In most cases they are very similar to a normal family trust.
When do they come into existence?
  • Unlike a family trust, they do not commence at the date of drafting.
  • The Testamentary Trust only comes into existence on the death of the Will maker.
What assets go into the Testamentary Trust?
  • Only assets in the name of the Will Maker form part of the Testamentary Trust.
  • Assets held in Family Trusts will not pass into the Testamentary Trust. Family Trust assets will continue to be owned by the Family Trust.
  • If you own a house as joint tenants with your partner and you die first, your interest will not form part of the Testamentary Trust.
  • Insurance and Superannuation proceeds may go into a Testamentary Trust but tax issues must be considered.
How long does a Testamentary Trust last?
  • Generally 80 years but depends on the purpose of the Testamentary Trust.
  • If the Testamentary Trust is for the benefit of a protected person it could be drafted to end upon the death of the protected person.
How does it work?
  • You can create one Testamentary Trust under your Will for all beneficiaries or one Testamentary Trust for each of the beneficiaries under your Will.
  • Instead of a person taking a benefit in their name, they take this benefit in a Testamentary Trust.
Who controls the Testamentary Trust?
  • This is up to the Will Maker and depends on the purpose of the trust.
  • There are 3 control positions within a trust;

–          Trustee – controls the day to day
–          Appointor – can replace the trustee of the trust
–          Guardian – determines who gets paid the proceeds under the Trust

  • If it is a protected trust for a disabled person, gambler or beneficiary that needs help, then professional persons, trusted family members or other persons may control.
  • If it is for a child, then the executors may control until the children turn a certain age – say 18, 20 or 30.
Advantages of the Testamentary Trust:
  • Asset protection – assets held in a Testamentary Trust are not available to creditors or if the beneficiary is a bankrupt.
  • Tax minimisation –the capital and income of a Testamentary Trust may be apportioned amongst the beneficiaries by the Trustee in a tax effective manner.
  • Lower rates of tax as compared to an inter vivos trust for some beneficiaries.
  • Flexibility – the trustee may pay the capital and/or income of the Testamentary Trust to any of the beneficiaries of the Trust. They can do this taking into account all the above factors and the circumstances of the beneficiary (family law claims, tax and other life issues)
Why should you have a Testamentary Trust?

We recommend a Will Maker have a Testamentary Trust included in the Will when:

  • The benefit received by a beneficiary under the Will will likely exceed $300,000.
  • A beneficiary under a Will has gambling issues, is disabled, a spendthrift or the Will Maker has other concerns about the beneficiary.
  • The beneficiary is a bankrupt or has creditors.
  • The beneficiaries relationship is in trouble.
  • The beneficiary is a professional or business owner.

A Testamentary Trust is for the principal benefit of the beneficiaries under the Will.

How much does it cost?
  • The costs to prepare a Testamentary Trust depends on the terms of the Trust.
  • A standard Testamentary Trust starts at $900 per Will and depends on the Will Makers instructions.
  • Once created (upon the death of the Will Maker) there will also be annual accounting fees to operate and manage the Testamentary Trust.

Contact us now at Danaher Legal for advice on Testamentary Trusts