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What is a Testamentary Trust Will and why should I have one?

What is a Testamentary Trust Will?

A “Testamentary Trust Will” effectively creates a Testamentary Trust within your Will. For those who have a family trust, the concept is quite similar (in that the trustee of the trust can distribute income to the trusts nominated beneficiaries). However, a Testamentary Trust only comes into play upon your death.

Creating a Testamentary Trust within your will, helps to ensure that your beneficiaries entitlements are protected.

Benefits of a Testamentary Trust

The main advantage of a Testamentary Trust is asset protection, however, there are a number of other advantages which should also be taken into account when deciding between a standard Will and a Testamentary Trust Will.

Asset Protection

By creating a Testamentary Trust within your Will, your beneficiaries’ entitlements will be owned by the trust itself and only controlled by the trustee to distribute income and capital to the beneficiary. Therefore the assets are not in the beneficiaries own individual names but in the name of the trust, which provides some protection of their assets.

The trustee of the trust can be anyone you wish, including the Executor of your Will, however should ultimately be someone whom you know and trust as they will be in control of your trust.

Compare this with a standard Will, where the assets are distributed to the beneficiaries in their own name. This means that a Testamentary Trust Will can be particularly useful in situations where, for example, people are in high risk areas of employment (lawyers, doctors etc) or have beneficiaries who may be bankrupt or spendthrift.

Relationship Breakdown

A Testamentary Trust Will can also provide some protection against a relationship breakdown (but not absolute protection). For example, if one of your children separates from their partner, the other children may remove them as trustee of their trust. Very careful attention needs to be paid to this.

Other benefits include the ability for your beneficiaries to split income and to keep investments in the name of the trust through generations, thus avoiding capital gains tax and transfer duty.

Risks of not having a Testamentary Trust

Under a standard Will, the following situations could occur leaving your assets vulnerable:

  • Your beneficiary goes bankrupt and their creditors take your beneficiaries share of your estate;
  • Your beneficiary is not very good with money and disposes of their inheritance against your wishes;
  • Your beneficiary remarries/re-partners after your death, effectively meaning their new partner potentially receives the benefit of your estate

These risks are significantly reduced by creating a Testamentary Trust Will.

Is it suitable for you?

A Testamentary Trust Will is suitable for most situations because of the protection it provides to your assets and beneficiaries. Whilst it is difficult to predict the future and whether one of the above scenarios will occur in your family, it will provide that protection for your loved ones against the unknown.

Certainly a standard Will would still outline your wishes and how you would like your estate to be distributed, however, it is difficult to provide the level of protection a Testamentary Trust Will provide for the unknown.

There are ongoing administrative costs for maintaining the trust so you should consider whether the income generated by your Estate will be sufficient to support these costs.

How does it differ from a well structured Will?

Our standard Wills are always structured in a way that ensures your estate is distributed in accordance with your wishes and in accordance with the law. The difference however with the Testamentary Trust Will is the asset protection benefits, as outlined above.

If you are considering creating a Testamentary Trust Will for you and your loved ones, make sure it is done correctly and with the advice of a qualified solicitor. Creating a Testamentary Trust within your Will does not have to be a difficult experience. Please do not hesitate to contact me if you would like further information.

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The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, Wills, Estates and Probate Lawyers (WEP Lawyers) cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. WEP Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. WEP Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.

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Chloe Kopilovic

Written by—

Chloe Kopilovic

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