Sarah Carey

A simple Will might seem like enough when planning your estate. But for families with more than $500,000 in assets, minor children, or beneficiaries who need extra protection, a Testamentary Trust Will can be a much better option.

Many people think testamentary trusts are only for the very wealthy. But when you include things like superannuation and life insurance, many families reach the $500,000 mark. At this level, the benefits of a testamentary trust often outweigh the costs and extra paperwork.

What exactly is a Testamentary Trust?

A testamentary trust is not a separate document you create while you are alive. It is included in your Will. After you pass away and your Will goes through probate, the trust is set up and managed by a trustee you choose, often your executor or another trusted person. This trustee holds and distributes assets to your beneficiaries based on the rules you set. It works like a discretionary trust you might set up during your life, but it can offer even more benefits.

Who should consider one?

If you care about protecting your assets, saving on taxes, helping vulnerable beneficiaries, keeping control of your assets after you’re gone, or building wealth for future generations, a testamentary trust could be a good choice.

Here’s how a testamentary trust Will can help you reach these goals and offer lasting benefits to your beneficiaries.

1. Enhanced Asset Protection

Asset protection is one of the main reasons to include a testamentary trust in your Will.

Instead of giving assets directly to beneficiaries, where they become personal property right away, assets in a testamentary trust are owned by the trust. This can help protect them from:

• Creditors if the beneficiary becomes bankrupt.
• Family law property settlement claims in the event of divorce.
• Poor money management by beneficiaries who may be financially inexperienced or vulnerable.

2. Tax Planning and Savings

A testamentary trust can also offer major tax benefits, especially compared to leaving assets directly to beneficiaries.

With a regular trust, minors can only get $416 before higher taxes apply. In a testamentary trust, minors are taxed at normal adult rates, which is about $22,000. This usually means lower tax bills than if they inherited assets directly. Particularly in light of the Prime Minister’s press release that testamentary trusts will be exempt from the 30% minimum tax on trust distributions, there’s no better time to consider a testamentary trust for your family.

Other tax-related benefits include:

• Income splitting between beneficiaries to take advantage of lower marginal tax rates.
• Capital gains tax flexibility, as gains from trust assets can potentially be distributed in a tax-efficient way.

These tax benefits make testamentary trusts appealing for families with investment properties, shares, or other assets that earn income.

3. Stability for Vulnerable Beneficiaries

If you have minor children, beneficiaries with disabilities, or someone who might have trouble managing a large inheritance, a testamentary trust lets you decide how and when they get their money.

Instead of a young adult getting a large sum at 18 and possibly misusing it, the trustee can give out funds over time or for certain needs, like education, housing, or living costs

4. Flexibility and Control After Death

A testamentary trust also lets you keep control after you’re gone. In your Will, you can decide:

• Who the trustee will be.
• Which beneficiaries will benefit and when.
• Whether distributions should be discretionary or subject to certain conditions.

This kind of control means your estate can adjust to your beneficiaries’ changing needs, like if grandchildren are born after you pass away.

5. Potential Multi-Generational Benefits

A simple Will gives out assets right away and then ends. A testamentary trust, on the other hand, can last for years, helping manage and protect wealth for future generations.

This makes testamentary trusts especially helpful for keeping family wealth safe and supporting children, grandchildren, or other relatives in an organized way.

Are There Downsides?

Testamentary trusts have many advantages, but they are more complicated and can cost more to manage than a regular Will. Trustees must handle ongoing reporting and tax duties, so families should think about these extra costs. Still, the benefits usually outweigh the extra work and expense.

Key Takeaways

A testamentary trust is a strong estate planning option that gives you the control of a trust and the simplicity of a Will. It’s especially useful if you want to protect vulnerable beneficiaries, save on taxes, or make sure your legacy is managed well for future generations.

If you think a testamentary trust could be right for your family, it’s a good idea to talk about your goals with Yarra Lane Legal.

About Sarah Carey

I bring a dynamic mix of experience in both law and aviation to everything I do. After completing a Bachelor of Business in Commercial Law and starting out as a law clerk in small to medium-sized firms, I pivoted into a rewarding 20-year career with Qantas. As a Flight Attendant Manager, I thrived in leading recruitment and service development projects, always driven by attention to detail and a passion for delivering exceptional customer experiences.

Recently, I’ve come full circle, returning to my legal roots after completing a Bachelor of Laws. Building on my previous legal experience, I’m excited to start this chapter with a fresh perspective shaped by my diverse career journey.

Outside of work, I lead a full and active life. You’ll often find me on the netball court, walking my dog, or playing with my young family. I’m also a passionate traveller, always seeking new adventures and connections that enrich my perspective and keep life interesting.

Disclaimer

People + Partners Wealth Management Pty Ltd ABN 67 127 250 613 is a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306. The content above is for general information only and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation, or needs.