Testamentary Trusts are discretionary trusts established via a Will. Like a Will, you will need to elect a person to become your trustee, this person must be somewho you trust implicitly in order to distribute your estate.
Once you have appointed your trustee or trustees, upon your death, the assets of the deceased are distributed to the trustees of the testamentary trust. Such trustees then hold (on trust) the assets for and on behalf of the beneficiaries and distribute the assets in accordance with the provisions of the Will.
On occasion, the Trust will leave to the Trustee discretion to decide when and how to use and distribute the assets. The Trustee is then able to meet the needs and act in the best interests of the beneficiaries named.
A range of assets can be held in the trust, including but not limited to:
Land or property;
Cash; or
Personal items such as art work or jewellery.
Testamentary trusts can be dissolved at any time. If a testamentary trust is dissolved the distributions of the estate are made to the nominated beneficiaries as they would if the trust did not exist. Usually, the Will sets out a specific end time for the trust, for example, when the beneficiaries reach a certain age.
Testamentary trusts can be beneficial to the beneficiaries as they often have tax reduction implications as unlike a will, the beneficiary does not take the assets in their personal capacity, meaning that they do not need to pay tax on any income generated at their personal marginal tax rate. In the case of the testamentary trust, the beneficiaries are taking the assets through a trust meaning there is the ability to reduce tax paid from income earned through the distributions of the estate. We would recommend discussing this matter further with your accountant should it be the reason why you are electing to create a testamentary trust.
Notwithstanding the above, individuals may choose to create a testamentary trust for a
multitude of reasons. The most common is due to the flexibility and control that can be instilled by the trustees in distributing the assets to the beneficiaries. This may be beneficial in circumstances where the beneficiaries are ill, disabled or have some other characteristic which could result in the negligent loss or dissipation of the distributions from the estate.
If you would like to discuss your options further, please contact our office to arrange a no-obligation appointment with one of our solicitors on 03 9450 9400.