What is a Testamentary Trust?

In Australia, Testamentary Trusts have emerged as a valuable tool in estate planning that offers a range of benefits, including tax advantages, asset protection, and flexibility in managing your estate.

A Testamentary Trust is a legal arrangement specified in your Will, which comes into effect upon your death.

This trust allows you to outline detailed instructions to the trustees on how your assets should be managed and distributed among your beneficiaries.

Benefits of a Testamentary Trust

There are many reasons why you may opt for a Testamentary Trust over a straight-forward Will, including:

Asset Protection
Maintaining Family Wealth
Protecting Vulnerable Beneficiaries
Tax Savings; and
Tax Flexibility.

Who owns the assets in a Testamentary Trust?

Assets under a Testamentary Trust are held and managed by a trustee (as appointed by you) for the benefit of your nominated beneficiaries.

Consequently, the beneficiaries do not own the assets of the trust, they merely obtain the benefit that derives from them.

This structure offers protection to your beneficiaries if they are involved in disputes, such as bankruptcy or family separation, where another party may seek possession of their assets.

Maintaining Family Wealth

Testamentary Trusts are a useful tool for maintaining inter-generational wealth.

They can be set up to ensure only lineal descendants and blood relatives benefit from the trust structure preventing in-laws and extended family from obtaining the benefit of those assets.

Protecting Vulnerable Beneficiaries

You may also protect vulnerable beneficiaries by separating the aspect of control and benefit of your assets.

This can be achieved by appointing an independent person to be the trustee of the trust(s) rather than the beneficiary themselves.

When an independent person is appointed as the trustee, there is a clear separation of control and benefit, allowing the trustee to make appropriate and sensible decisions concerning the assets.

Testamentary Trusts & Tax

Ownership of assets through trusts is an effective way to minimise tax, not avoid tax.

Where a beneficiary receives an inheritance in their personal name, they may be subject to capital gains tax at their personal marginal tax rate.

A minor beneficiary of the trust, under the age of 18 years, is treated as an adult for tax purposes, meaning they can receive $18,200 before paying tax.

Are distributions from a Testamentary Trust taxable?

A Testamentary Trust structure allows you the flexibility to distribute any income gains, capital gains, and franked dividends from your estate in the most tax-efficient way possible.

You may distribute the above to your beneficiaries to minimise the tax payable.

Contact Us

For more information, contact Bambrick Legal’s Testamentary Trust and estate planning lawyers today. We offer a free, no-obligation 15-min consultation for all enquiries.