A look at a recent NSW Supreme Court decision on Testamentary Trusts for children with a disability
Testamentary Trusts are Trusts established in a person’s Will where a Trustee is appointed to manage assets gifted to beneficiaries under the Will. Testamentary Trusts are often used when the deceased has young children or a child with a disability.
In a recent New South Wales Supreme Court case a father had set up a Testamentary Trust in his Will for the benefit of his disabled son. There is no standard formula for setting up a Testamentary Trust in a Will, which enables the person making the Will to the flexibility to address their specific circumstances and situation.
In this instance the father’s Will set out very particular conditions relating to the Trust stating, that the capital and income of the Trust be used for the maintenance, benefit, advancement in life and well being of his son according to the following principles:
That his son’s views and wishes, so far as they could be ascertained, be given priority consideration by the Trustee;
- That decisions made about his son by the Trustee be as nearly as possible the decisions his son would make if not disabled;
- That the Trustee protect his son’s welfare and interests;
- That the Trustee not interfere with his son’s life except to the least possible extent; and
- That his son be encouraged to look after himself as much as possible and live in the general community.
The Will also had a number of other important factors in relation to the Testamentary Trust:
- The Trust would terminate on the death of his disabled son and all the money in the Trust would be divided between his remaining children.
- The Trust would terminate if professionals in his son’s field of disability had satisfactory evidence that his son had recovered sufficiently from his disability and all the money in the Trust would be paid to his son.
- If it became clear to the Trustee that the amount of money in the Trust was larger than necessary for his son’s care and maintenance, then the Trustee could distribute the excess money to all or any of the other beneficiaries under the Will.
The father had two other beneficiaries under his Will, being a daughter and another son. The issue that arose was that the father had appointed his daughter as the Trustee of the Testamentary Trust.
The father’s other son challenged the construction of the Testamentary Trust on the basis that, it allowed the Trustee, his sister, to use the Trust for purposes other than the care and maintenance of their disabled brother.
The Court found that the deceased had wanted his Estate to be shared equally between his children. By appointing his daughter as the Trustee of the Testamentary Trust, he had placed her in a position where she could potentially advantage herself by making distributions from the Trust to herself as a beneficiary under the Will. However, the Court did not find that part of the Will was void and refused make any changes to the terms of the Trust.
Graeme Heckenberg is an expert Wills & Estates lawyer and will be able to guide you advise you in the event that you wish to set up a Testamentary Trust in your Will.
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