Should you consider a Testamentary Trust?

Thinking of writing your last will and testament? Want to provide a specific asset or portion of your estate, or the entire remaining estate to your loved ones after your death? You might want to consider a Testamentary Trust.

Your assets are used according to your intentions in a testamentary trust. You can also create multiple testamentary trusts under one will.

Not sure what a testamentary trust is? Don’t worry! This blog, by the Wills and Estate Lawyers at Melmark Law in Melbourne covers the basics of a testamentary trust and its benefits.

What is a testamentary trust? 

Testamentary trusts are an estate planning tool that provides many benefits such as: 

• control 
• asset protection
• tax advantages etc.

The main goal of a testamentary trust is to hold, manage distribute assets to the beneficiaries according to the instructions of the will. You must name a trustee to manage the trust’s assets.

Because testamentary trusts created under a will, they are not effective until the testator (the will-maker) passes away. 

Who is eligible to be a trustee? 

You can name anyone as a trustee, including your spouse or the executor of your will. However, it should be someone you trust who will work in your beneficiaries’ best interests. 

How is a testamentary trust different from a will? 

A will is a legal declaration where the will-maker outlines their wishes for the distribution of their assets after their passing. A will also contains the beneficiaries and the executor of a will. 

A testamentary trust is when the assets of the will are managed by a trustee. 

What are the advantages of a testamentary trust? 

1. Assets are protected 

The assets held by a Testamentary Trust are safeguarded to a certain extent because they are held by a Trust and are not owned by the beneficiaries. For example, the beneficiaries’ creditors or spouses cannot access the assets held by the Trust upon the dissolution of a marriage.

2. Flexibility  

You can choose how to divide the assets to the beneficiaries with a testamentary trust.  

This trust may meet your own unique needs, and give your kids permission to use it for their own advantage. 

3. Income tax benefit 

The income tax redemption is the main advantage of a testamentary trust. Beneficiaries typically invest the money they get from a Will to generate more income, which they add to their wage and pay tax on at standard marginal rates.  

In the case of testamentary trusts, the trustee pays the beneficiaries their share of the trust’s revenue. If the beneficiaries send the money to their unemployed dependents, each person’s income tax advantage can be claimed. 

4. No cost of transferring assets 

There are tax benefits to using a Testamentary Trust. Because the transfer is made through your Will, you don’t have to pay Stamp Duty and Capital Gains Tax when you transfer your assets to this trust. 

5. Superannuation and life insurance 

You can include the entitlements from a life insurance policy and the total value of a superannuation fund in your testamentary trust. Your beneficiaries will benefit more if they receive their entitlements through the Trust. It is more advantageous than using any other payment method outside the Trust’s scope of protection. 

6. Protection from incautious beneficiaries  

These types of trusts are appropriate for beneficiaries who are unable to manage their share independently or who have a significant risk of misusing their share. This trust allows the trustee to manage the assets on behalf of the beneficiaries in such situations. 

Why should you consult with the Wills and Estates Lawyers at Melmark Law when thinking of incorporating a testamentary trust in your will? 

There are a lot of benefits to adding a testamentary trust to the Will. The majority of people choose to establish a testamentary trust in their will if they have young children or children with disabilities who would not be able to manage their inheritance. You can also establish several testamentary trusts. 

Our team of Wills and Estate Planning solicitors at Melmark Law in Melbourne has a wealth of expertise handling a range of situations. 

A testamentary trust can be difficult to understand if you’re unfamiliar with it. To help you understand this, you should speak with lawyers who have expertise in the field. Contact the Wills and Estate Planning lawyers at Melmark Law right away if you have any questions about capital gains tax, income tax, or superannuation funds.