A Testamentary Trust Will
Posted on July 15th, 2023
What is a Testamentary Trust?
A testamentary trust is a trust created by a Will. It is generally a discretionary trust – one where the trustee has full discretion about who benefits, and to what extent, under the trust.
Why would I use a Testamentary Trust?
Testamentary trusts can make sure the inheritance reaches the intended recipients. An independent trustee can guarantee that vulnerable beneficiaries, such as very young children or the ill, incapacitated or disabled, will be provided for.
A Testamentary Trust can also give your family asset protection for their inheritance if they are being pursued by an ex-spouse or ex-partner in a family law/divorce property settlement.
Testamentary Trusts are also a wise precaution if the beneficiaries may face legal action or bankruptcy, such as those in professions frequently subject to litigation, or high-risk business. This form of protection is often referred to as Asset Protection.
A Testamentary Trust provides for distribution of income and capital done in a way that takes into account the potential beneficiary’s changing needs and therefore, minimising the ability of creditors to identify those assets as belonging to a particular beneficiary. There is the added advantage in having a Testamentary Trust in that the family you leave behind and your lineal descendants receive substantial savings in tax because the income of the Testamentary Trust is taxed in the hands of the beneficiaries who received it. Therefore, the income earned on the inheritance can potentially be split with family members on lower incomes, thereby taking advantage of their lower marginal tax rates.
A Testamentary Trust will give you peace of mind knowing that you have given your family the best chance to preserve as long as possible the wealth that you have accumulated during your lifetime.