Testamentary Trusts

What is a testamentary trust?

A Testamentary Trust is a trust that can be incorporated into your Will to add extra protection and security on your assets. It allows your beneficiaries flexibility while providing the best defence against third parties claiming against your assets.

Benefits of a testamentary trust

Advantages of the Testamentary Trust

There are various advantages to including a Testamentary Trust which include the following:

Assets that are protected under the trust may not form part of the property pool if any of the nominated beneficiaries go through family law proceeding (i.e. divorce). This may be the best protection against the claim by an ex-spouse of any beneficiary to a part of your estate.

Assets under the trust will generally be protected from creditors or liquidator should any of your nominated beneficiaries become bankrupt.

There are numerous tax benefits to having a family protection trust.

Testamentary trusts explained

A testamentary trust is a trust that has been established by Will and only comes into existence upon your death. It is generally discretionary where the trustee has full discretion about who benefits, and to what extent. The maximum length of time for which a testamentary trust can operate is 80 years.

A trust is a legally binding relationship between one person ("the testator" - if the trust is created by Will or "the settlor" - if the trust is created during your lifetime) who transfers assets ("the Trust Fund") to a person ("the Trustee") who then holds the assets for the benefit of an individual or group of people ("the beneficiaries").

Benefits of a Testamentary trust

There are many potential benefits to including a testamentary trust into your Will:

- tax benefits (income splitting)

- bankruptcy protection

- protection family law proceedings

- protection against spendthrift and irresponsible beneficiaries

Protect your estate

perhaps the greatest benefit of the testamentary trust is protection

If estate assets pass directly via Will to a beneficiary, those assets will immediately become available to any person who wishes to make a claim against them. This includes that beneficiary's creditors if they are bankrupt or in financial difficulty.