What is a Testamentary Trust?

A Testamentary Trust is established in a person’s Will, and is activated after their death. It is created to hold and safeguard all or some of the assets that a person accumulates over their lifetime, for the benefit of others, known as beneficiaries.

A trustee is nominated in a Will to manage the trust assets. The trustee is responsible for distributing the assets to the beneficiaries as per the terms outlined in the Will.

What assets can be part of the trust?

There are many types of assets that can be held in trust. These may include:

  • Investments
  • Land or property
  • Cash
  • Other valuable assets; such as paintings, furniture, or jewellery.

The money and investments held in trust are also called trust capital. This capital may produce income, such as interest or dividends on shares. Assets may also grow in value resulting in capital gains for the trust.

Can you set up a life-interest benefit through a Testamentary Trust?

When establishing your trust, you may consider setting up a life-interest benefit for your beneficiaries. A life-interest benefit allows a person to benefit from an asset for the rest of their life, but without ultimately inheriting it. For example, a trust may allow a beneficiary to live in a property, earn the return on invested funds, or receive rental income from the property for the rest of their life. After their death, the trust assets can then pass to other family members, charities or whatever you specify in your Will.

Who can be trustee?

You can appoint a family member or a friend who is over 18 years of age and is an Australian resident to act as trustee. You may also appoint a professional Trustee Company such as State Trustees, or a corporation that specialises in legal, accounting or financial planning.

The trustee is the legal owner of the trust assets, and has a duty to manage these in the best interests of the beneficiaries as outlined in the Will.

When can the trust assets be distributed?

The trustee can distribute capital or income to any nominated beneficiary at any time where the Will instructs the trustee to, or where the Will gives the trustee discretion to use trust assets for the needs and best interests of the beneficiaries. A Testamentary Trust gives you the flexibility and control over when and how your beneficiaries receive their inheritance.

Are there any tax advantages of a Testamentary Trust?

Where the terms of your Will allow, taxable income that is generated by the trust can be allocated to the beneficiaries in the most tax effective way.

How long can the trust operate?

The trust will end at a time, or upon an event, specified in the Will, such as when your beneficiaries attain a certain age or complete their education. Or it may be once a life interest beneficiary dies, and at this time other beneficiaries, known as the remainder beneficiaries, inherit the assets.