Testamentary trusts

An estate planning tool offering tax planning and wealth preservation opportunities

There are two common ways to gift assets under your Will. The first is to pass the gift directly to a person. The second is to pass the gift into a structure where someone (called the trustee) will look after the gift for a range of other people (called the beneficiaries). This second way utilises a structure called a testamentary trust.

Testamentary trusts are useful in allowing gifts to pass to trusted people to manage, invest and then subsequently pass control of the gifts to the ultimate recipients at the appropriate time. This is commonly used for gifting inheritances to minor children, but can also be useful gifts made to adults who are either in a risky profession or unstable relationship, or who have minor children.

The structure works for gifting to minors as you can pass the assets to someone you trust to look after it and manage it, whilst the structure works for adults as the recipient does not receive assets in their name.

The advantages of utilising a testamentary trust includes the:

  • ability to provide gifts in a structure offering some form of protection against bankruptcy and relationship breakdowns;
  • ability to provide gifts in a tax effective manner; and
  • ability to entrust gifts to trusted persons with the flexibility for such persons to invest and pass down the gift in the most appropriate manner after your death.

The disadvantages of utilising a tesatmentary trust includes:

  • the added complexity in understanding the structure;
  • ongoing maintenance costs once established after your death, as well as the updating of your Will if significant changes to the law occur prior to your death;
  • the recommendation that gifts into testamentary trusts are at least $500,000 in value;
  • additional thought required to 'structure' initially; and
  • the potential for abuse of the trust funds if the persons controlling the testamentary trust are not trustworthy.

Critical in utilising testamentary trusts is appointing people you trust to look after the assets going into the testamentary trust. While the only real rule is that you can only appoint up to four people at any one time to act together, it is recommended to keep the numbers down to one or two. Pick one person if you 100% trust them to act in the best interest of the beneficiaries or pick two if you require some oversight between the nominated persons. If you are in a situation where there is no one or group of people you can trust, you may wish to consider appointing independent professionals to either act solely or jointly with your nominated controllers.

Why choose us for your testamentary trust?

Some providers charge an additional fee to utilise a testamentary trust as part of your Will. We do not. Our goal is to provide you with a Will for a fixed price regardless of whether you utilise a testamentary trust or not

We at Chat Legal have a deep interest in trust law and the taxation of trusts and the testamentary trusts established under your Will reflects our preference for a commercial and flexible structure able to be used for generations to come.

Testamentary trusts often come as standard clauses added to your Will and the inclusion of 'special terms' is often not included in a fixed price given the additional work required to tailor your wishes. We offer the inclusion of certain 'special terms' as part of our fixed price to assist with providing you with a Will reflecting your estate planning intentions, but strongly do not recommend being too prescriptive given the never ending additional scenarios and hypothetical circumstances to consider.

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