What Is a Testamentary Trust – and Do I Need One in My Will?

Can it protect my child's inheritance if they separate?

This is one of the most common questions we receive.

A testamentary trust can provide an additional layer of asset protection compared with simply giving an inheritance directly to a beneficiary.

However, it is important not to think of a testamentary trust as a guarantee that an inheritance will be completely protected from a future family law property settlement.

The way the trust is structured, controlled and used can all be relevant.

If this is one of your main concerns, tell your solicitor when preparing your Will so your estate plan can be structured with that objective in mind.

Do I need a testamentary trust Will?

Not everyone does.

For some people, a straightforward Will is entirely appropriate.

For others – particularly families with children, significant assets, businesses, blended families or beneficiaries who may benefit from additional protection – a testamentary trust may be worth considering.

At Neilson + Co Legal, we don't believe estate planning should be one-size-fits-all.

We take the time to understand your family, your assets and what you actually want to achieve.

You've probably heard the term "testamentary trust".

It sounds complicated.

But the idea behind it is actually fairly simple.

A testamentary trust is a trust created by your Will that can come into existence after you die. Instead of an inheritance simply being paid directly to a beneficiary, assets can be held and managed through the trust.

For the right family, it can provide valuable flexibility and protection.

How does a testamentary trust work?

Let's use an example.

You want to leave your estate to your two adult children.

With a simple Will, each child might receive their share of your estate directly.

With a testamentary trust Will, each child's inheritance may instead be held within a trust established for their benefit.

Depending on how your Will is drafted, the beneficiary may have significant control over their trust while also having flexibility about how the assets and income are managed and distributed.

Why would someone want a testamentary trust?

There isn't one single reason.

Testamentary trusts can be considered for a number of estate-planning objectives, including:

• protecting and managing an inheritance;

• providing flexibility for beneficiaries;

• protecting young or vulnerable beneficiaries;

• assisting where a beneficiary may not be good at managing money;

• providing some protection in the event of financial difficulties or bankruptcy; and

• providing potential taxation advantages in appropriate circumstances.

They can also be useful for families who simply want more control over how substantial inheritances are passed to the next generation.

Are testamentary trusts only for wealthy families?

No.

You don't necessarily need millions of dollars for a testamentary trust to be worth considering.

Think about the potential value of your estate if you died tomorrow.

Your home, investments, bank accounts and other assets can add up quickly.

There may also be life insurance or superannuation death benefits to consider, although these don't automatically form part of your estate.

The real question isn't simply:

"Am I wealthy enough?"

It's:

"Would my beneficiaries benefit from greater flexibility or protection?"

Thinking about making or updating your Will? Talk to Neilson + Co Legal about whether a testamentary trust is right for your estate plan.