What is a Testamentary Trust?

A testamentary trust does not come into effect until after the death of the person making the will. At this time, specified deceased estate property is transferred to a trustee, who holds the assets on trust for the benefit of the beneficiaries.

A Testamentary Trust is established to give the Trustee a broad discretion to distribute capital and income between a group of beneficiaries nominated in the Will. The Trustee has effective control of the Trust, so should be a person the Will maker Trusts will act in the best interests of the beneficiaries of the testamentary Trust.

Yesterdays post discussed the role of an executor as trustee of the deceased estate. However, this is not the same thing as a testamentary trust, which may continue for many years after the deceased estate has been fully administered.

An example of a testamentary trust is a trust created by a Will that on the death of a parent with a child under 18 their assets are held in trust until that child turns 18. However a Testamentary Trust can be established for the benefit of any beneficiaries.

As the Trust assets are not legally owned by the beneficiaries they may be protected in the event of a family breakdown or divorce; or from creditors if a beneficiary is, or is likely to become bankrupt. Importantly it protects vulnerable beneficiaries who might be receiving a pension and would lose their entitlements if they were to receive a lump sum inheritance, or impecunious beneficiaries who might be at risk of spending their share of your estate. There could also be tax advantages in distributing the assets of the estate via a trust.

In discussing your future plans with your Lawyer, Accountant, and financial planner you should discuss the benefits of establishing a Testamentary Trust in your Will – and if it is the best thing for you.


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