What are they?
A testamentary trust is a type of trust that is created through a person’s will and comes into effect after their death. It is established to manage and distribute assets to beneficiaries according to the wishes specified in the will. Here are some key points about testamentary trusts:
- Creation: A testamentary trust is formed when a person includes specific provisions in their will, designating certain assets to be placed into the trust upon their death. The will acts as the trust document and outlines how the trust should be administered.
- Trustee: The person creating the testamentary trust, also known as the testator, appoints a trustee who will be responsible for managing the trust assets and carrying out the instructions laid out in the will.
- Beneficiaries: The testator determines the beneficiaries of the testamentary trust and specifies how the trust assets should be distributed to them. Beneficiaries can include family members, friends, charities, or any other individuals or organisations chosen by the testator.
Benefits of Testamentary Trusts:
- Flexibility: Testamentary trusts offer significant flexibility in distributing assets. They allow the testator to specify how and when beneficiaries should receive their inheritance. For example, the trust can be structured to provide periodic distributions or delayed distributions until certain conditions are met, such as reaching a certain age.
- Asset Protection: Testamentary trusts can provide a level of asset protection for beneficiaries. By placing assets in a trust, they may be shielded from potential creditors, legal claims, or divorce proceedings that the beneficiaries may encounter.
- Tax Planning: Testamentary trusts can be useful for minimising taxes. Depending on the jurisdiction, they may provide opportunities for income splitting among beneficiaries, taking advantage of lower tax brackets, and utilising various tax exemptions or deductions.
- Special Disability Trusts: Testamentary trusts can be particularly beneficial when a testator wishes to provide for a family member with a severe disability. A special disability trust can assist to ensure that the beneficiary’s eligibility for government assistance programs is maintained while providing additional financial support.
Who Are They Useful For?
Testamentary trusts can be useful for individuals who want to exert control over the distribution of their assets after death, ensure their beneficiaries’ financial security, protect assets and minimise taxes. They can be particularly beneficial in situations involving complex family structures, significant assets, charitable intentions, special needs beneficiaries, or the desire for long-term asset management.
To see if setting up a testamentary trust in your will is the right decision, talk to us to learn more.
The above is general in nature and does not constitute legal advice.
