What is a testamentary trust?
A testamentary trust is a type of trust that is established through a person’s will and comes into effect after their death. In other words, the trust is created upon the testator’s death and is funded with assets from their estate.
The trust can be established for a variety of purposes, such as providing for the education or support of minor children or other beneficiaries, protecting assets from creditors or predators, or minimizing taxes. The terms of the trust are set out in the testator’s will. And the trustee is responsible for managing the assets held in trust and distributing income and/or principal to the beneficiaries as specified in the trust document.
Testamentary trusts can be structured in many different ways, depending on the goals of the testator and the needs of the beneficiaries. They can be established as fixed trusts, discretionary trusts, or a combination of the two. They can also be structured to terminate after a certain period of time or to continue indefinitely.
Overall, a testamentary trust can be a useful tool for individuals who want to provide for their loved ones or protect their assets after their death. However, it’s important to seek the advice of a qualified lawyer or financial advisor when creating a testamentary trust to ensure that it is structured in a way that meets your goals and complies with applicable laws and regulations.
How does a Testamentary Trust work?
A Testamentary Trust is a Trust that is set up in your Will to look after your loved ones after you are gone. A Testamentary Trust comes into effect after you die.
The way a Testamentary Trust works is that you set up a Trust in your Will with all or some of your assets. These are used to support your beneficiaries. The assets are held in the Trust and looked after by a Trustee nominated by you and do not form part of your beneficiary’s estate. The income from the Testamentary Trust can be distributed to the beneficiaries of the Testamentary Trust, named in your Will in accordance with any conditions set out in your Will.
What are the advantages of a Testamentary Trust?
Related: Top 3 Benefits of a Testamentary Trust
There are many reasons for setting up a Testamentary Trust.
Including:
- Looking after vulnerable family members;
- Minimising your beneficiaries’ exposure to taxation and bankruptcy;
- Protecting your beneficiaries’ inheritance if they go through a breakdown of a marriage or de facto relationship.
How to set up a Testamentary Trust
If you intend to set up a Testamentary Trust in your Will, then you need to ensure that your Will is drafted by an expert Wills and Estates Lawyer. The wording of the Testamentary Trust is extremely important, as it sets out the powers the Trustee has, to deal with the assets in the Trust, such as sale of property and the release of monies to the beneficiaries.
When considering a Testamentary Trust there are a number of fundamental questions that you need to consider. The first is who you want to appoint as the Trustee. Remember, this is the person or persons who are going to be looking after your beneficiaries’ inheritance, so you need to be sure that the person you choose would administer the Trust in their best interests. You also need to consider the people who you want to be a beneficiary of the Testamentary Trust. Sometimes this can be listed as a group i.e. all my children and sometimes this can be specific to a vulnerable family member i.e. my son Drew or my children until they reach 18 years of age.
The benefits of a Testamentary Trust to beneficiaries means that they are becoming more and more commonly included in a Will. Depending on your personal circumstances they can be the perfect way to protect your loved ones after you are gone.
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