You have taken the first step in estate planning by deciding to organise your estate documents. Once you have decided to do that, you may come across complex terms that your lawyer will use in relation to estate planning.

Testamentary Trusts is one such term that will arise and we have simplified it for you. At LawPath, we can connect you with an Estate Planning Lawyer to assist with your legal needs.

What is a Testamentary Trust?

A testamentary trust is a type of trust that is created under a will but it will not come into effect until the person making the will has passed away.

The testamentary trust is the ‘trust’ that will hold your assets and be managed by a trustee (or Trustees). A trustee is a person (or persons) appointed by you to manage the trust, for the benefit of beneficiaries, family members or friends who will benefit from your will. There are various benefits of creating a testamentary trust.

There are different types of testamentary trusts that you can create out of your will depending on what you want to achieve or what concern you want to address. This could range from flexibility in managing your assets, to putting restrictions on distribution or special tax relief.

The two most common types of Testamentary Trusts

Discretionary Testamentary Trust: This type of trust gives the beneficiaries the right to control assets freely. Usually the beneficiary is also the trustee of the trust with full flexibility in disposing of the assets. This type of trust is usually used when the beneficiary is bankrupt or to provide flexibility for tax purposes.

For example: If one of the beneficiaries is not earning an income, a discretionary testamentary trust can be used to distribute income to such person to gain maximum tax benefits.

Capital Protected Testamentary Trust: This type of trust is used to protect the assets for the benefit of the beneficiary. Usually the beneficiary is not in the capacity to manage his or her own assets and there is a need for a third party to manage the trust for them.

For example: When a child is a beneficiary of a trust, a capital protected testamentary trust works well as it provides security for the child, with professional management of the trust, by a lawyer or an accountant on the child’s behalf.

How do I create a Testamentary Trust?

A testamentary trust is created by your will. A lawyer can establish a trust. There is no standard format for a Testamentary Trust Deed as each deed is to be tailor-made for the benefit of you and your family. If you are considering creating a testamentary trust, you will need to consult with an Estate Planning Lawyer.

Who can be a Trustee?

There are no restrictions or qualifications required to be a Trustee of a testamentary trust. The trustee could be the beneficiaries themselves, a trusted friend, a family member, or a professional. As the maker of the will, you must make sure that the trustee will act in the best interest of the beneficiaries.

It is possible to establish a number of testamentary trusts under a will and name different trustees for each of them.

What costs are usually involved in managing a Testamentary Trust?

There are certain costs involved in managing a trust, which include:

  • Fees of a professional for managing the trust;
  • Accountant’s fee for filing tax returns;
  • Lawyer’s fees for creating a testamentary trust deed; and
  • Stamp Duty costs for stamping your Testamentary Trust Deed.

LawPath has access to highly qualified Estate Planning Lawyers who can assist you with establishing a testamentary trust and other important aspects of estate planning.

Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.

Nishita John

Nishita is a paralegal at LawPath working in our content team, which works to provide free legal guides to enhance public access to legal resources. With an Investment Banking background and a keen interest in Corporate and Commercial Law, her research focuses on small and medium businesses, and how to simplify complex legal procedures