Using Testamentary Trusts

Estate planning allows testators to exercise a higher level of control over the distribution and management of their wealth to beneficiaries. Testamentary trusts are an effective estate planning tool because of their ability to protect assets and minimise tax consequences.

A testamentary trust is a trust created by a Will which comes into effect after the death of the testator. The two most common types are:

discretionary testamentary trusts. This gives the beneficiary an option to inherit all or part of their inheritance pursuant to the will via a discretionary testamentary trust.  When established correctly the beneficiary can maintain a significant level of control over the management of their inheritance inside the trust.

Fixed testamentary trusts. This is a protective arrangement whereby a beneficiary must take their inheritance through the trust and have limited control and power over the management of their inheritance.  Fixed testamentary trusts are often utilised where there is a question as to the beneficiary’s ability due to age, disability or circumstances.

There are numerous tax and asset protection advantages to setting up a testamentary trust in a will, including but not limited to:

– Protection of assets from creditors and claims in potential matrimonial property disputes;

– Maximum flexibility by allowing the trustee to distribute and split the income of the trust with taxation considerations in mind;

– Distribution to minor beneficiaries without application of penalty tax rates. This means that beneficiaries under 18 years of age receive the benefit of the full income tax free threshold, and income above that amount is taxed at normal adult rates; and

– Control over the future use or disposition of estate assets.


Need Help?

A well-structured and considered estate plan can bring you peace of mind in relation to the management of your assets for the benefit of subsequent generations. For advice or assistance in relation to setting up a testamentary trust in a will please contact our team of tax solicitors at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.