So, you’re planning your will. Maybe you’re thinking about how to protect your kids, your partner, or that cousin who’s terrible with money. Or maybe you’re just trying to avoid your estate turning into a courtroom drama.
Enter: the testamentary trust.
It might sound like legal jargon you’d rather ignore, but this little feature could be one of the smartest moves in your estate plan.
Let’s unpack what a testamentary trust really is, why people use them, and what the law says you actually need to do to set one up.
First up: what is a testamentary trust?
At its core, a testamentary trust is a trust that’s created by your will, meaning it only comes into effect after you die.
Unlike a family trust you set up while you’re alive, this one kicks in once your estate is being administered. It holds and manages assets (like property, investments, cash) on behalf of your chosen beneficiaries, but under the control of a trustee.
Think of it like putting your assets in a protective bubble, with someone you trust steering the ship, all according to your rules.
Why would anyone go to the trouble?
Great question. The short answer: control, tax perks, and protection.
- Protecting vulnerable beneficiaries
Got a young child? Someone with a disability? Or a family member with addiction or debt issues? A testamentary trust can stop that person from blowing their inheritance in one go, or having it seized by creditors or a divorce settlement. - Serious tax advantages
Here’s where it gets interesting. Income distributed from a testamentary trust to minors gets taxed like adult income. That means way lower tax bills than if they just inherited the money directly. - Flexibility in distributing your estate
Life’s messy. A trust gives your trustee options, they can distribute income or capital based on changing needs, rather than locking in fixed amounts. This can be a huge relief if circumstances change after you’re gone.
But of course, there’s fine print
Yes, there are legal boxes to tick. Here’s what you’ll need to keep things enforceable (and drama-free):
- Clear instructions in your will: If you want a testamentary trust, you need to spell it out in your will. Including who the trustee is, who the beneficiaries are, what assets go into the trust, and how it should be run.
- Choose your trustee wisely: This person (or people) will be calling the shots -investing money, distributing funds, and making judgement calls. Choose someone responsible and legally eligible.
- Stick to the rules: Like all trusts, testamentary trusts need to follow trust law. That means proper record-keeping, compliance with trustee duties, and not mixing up personal assets with trust assets.
Is it overkill for a “simple” estate?
Not necessarily.
Even if your estate isn’t massive, a testamentary trust can still offer big benefits especially if you’ve got minor children, business interests, or potential family tensions.
On the other hand, if you’ve got a modest estate and straightforward wishes (say, everything to your spouse, then equally to the kids), a trust might not be worth the extra complexity. That’s where tailored legal advice comes in.
The bottom line?
Testamentary trusts might sound complicated, but they’re just a smart way to keep your legacy protected, legally and financially. Whether you need one depends on your goals, your assets, and your family dynamics.
Get advice from a lawyer to make the right choice before you finalise your will. It’s far easier to build in the right protections now than to leave your family untangling things later.
Want to explore if a testamentary trust is right for your estate plan?
At Shore Lawyers, we help clients create wills that actually work in real life, not just on paper. Fill out the Contact Us form here on the website or call us at (02) 9712 4244 or email cases@shorelawyers.com.au to chat with our estate planning team.
