Testamentary Trusts in Victoria

This option might be suitable if you:

1. Have young children
2. Want to control how assets are used after death
3. Have a blended family
4. Are concerned about asset protection
5. Want long-term support for beneficiaries

Who should consider setting up this type of trust?

• A Will is made that includes a testamentary trust
• The person dies
• The executor of a will carries out the Will
• Assets are transferred into the trust
• A trustee manages the trust for beneficiaries

The trustee must follow the instructions in the Will and act in the best interests of the beneficiaries.

Yes, there are many types of assets that can be added to and held in a trust, including:

1. Investments
2. Land or property
3. Cash
4. Other valuable belongings such as paintings, furniture, or jewelry.

The money and investments held in trust are also called trust capital. This capital can produce income, such as interest from bank accounts or dividends on shares. Assets can also go up in value. This can mean the trust generates capital gains.

This kind of trust can offer important benefits:

Assets are controlled by the trustee, which helps protect them for beneficiaries.

Support for children

Allows assets to be managed for children. Distributions can be made as needed over time.

Flexibility

The trustee can respond to changing circumstances, which allows long-term planning for beneficiaries.

Structure for complex families

Can help blended families by providing clear instructions about who receives what and when.

Tax effectiveness

In some cases, it may offer tax advantages. However, this depends on individual circumstances and no tax outcome is guaranteed.

When creating your trust, you may want to think about setting up a life-interest benefit for your beneficiaries. A life-interest benefit means a person will benefit from an asset for the rest of their life. But they won’t actually inherit it.

For example, a trust may allow a beneficiary for the rest of their life

• To live in a property
• Earn interest on invested money
• Receive rental income from a property

After their death, the assets then pass on to other family members, charities or whatever you included in your will.

Following the instructions in your will, the trust’s taxable income can be distributed to the beneficiaries in the most tax-effective way. Learn more about State Trustees’ taxation services.

When creating your trust, you may want to think about setting up a life-interest benefit for your beneficiaries. This means a person will benefit from an asset for the rest of their life, but they won’t actually inherit it. For example, a trust may allow a beneficiary for the rest of their life:

• To live in a property
• Earn interest on invested money
• Receive rental income from a property

After the beneficiary dies, the assets pass to other family members, charities, or any other beneficiaries you named in your will.

We often get asked who controls a testamentary trust. The trustee is the legal owner of the trust assets and must manage them in the best interests of the beneficiaries. A trustee can be a:

• family member
• friend who is over 18
• Australian resident

You can also appoint a trustee company, such as State Trustees, or a legal, accounting, or financial planning organisation. 

The trustee follows the instructions in the will regarding when and to whom to distribute assets. They can distribute money or interest to any beneficiary at any time in line with these instructions. Sometimes the will leaves it up to the trustee to decide when and how to use and distribute the assets. They can then meet the beneficiaries’ needs and best interests.

A trust like this gives you control over when and how your beneficiaries get their inheritance.

In Victoria, this kind of trust can usually run for up to 80 years. This is set by law, and is often called the maximum trust period. However, some testamentary trusts end earlier – the exact length will depend on what the will says.