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What is a Testamentary Trust?

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 is the benefit 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 in the event that 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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