We prepare Basic Wills and Testamentary Trust Wills. If you need a new Will, call us on (08) 6460-5460 to arrange an appointment.
What is a Testamentary Trust Will? It is a special kind of Will that sets up a trust, similar to a “family” or discretionary trust, which is called a testamentary trust. A trust is an arrangement where property is placed in the hand of one person (the trustee) to manage for the benefit of one or more other persons (the beneficiaries).
This type of Will is like two documents rolled into one: a Will and a trust deed. They tend to be much larger than Basic Wills, for example 20 pages versus 3 to 5 pages for a Basic Will.
In the right situations, creating a testamentary trust can have a number of significant benefits for the Will-maker and his or her beneficiaries. Here are some of those reasons.
CONTROL OVER PROPERTY
By placing the estate property into a testamentary trust, which is managed by a trustee, the Will-maker sets up a scheme for the property to be preserved and managed for the benefit of their beneficiaries. Under a Basic Will, the executor can manage property in that way only for minors below the age of inheritance. For other beneficiaries, and for children after they reach the age of inheritance, the executor’s duty is to distribute their shares in the estate to them without delay.
CHOICE OF BENEFICIARIES
Under a Basic Will, if a person dies and leaves a gift to one of their adult children, and that child later becomes divorced, the ex-spouse could be able to claim a share of the child’s inheritance in the divorce proceedings. Under Testamentary Trusts, parents who are Will-makers can set up rules for the spouses of their children to be included as beneficiaries of the trusts while together with the Will-maker’s children/beneficiaries, but excluded if they divorce. The child’s ex-spouse doesn’t have any claim on the trust’s property because he or she wasn’t married to the trust. The family court (divorce court) does have power to ignore trust arrangements in certain situations, but, as a general rule, the Will-maker’s property will be more likely to remain available for the exclusive use of his or her children if it is placed in a testamentary trust rather than given to the child directly.
Not only is the trust property (somewhat) protected from divorce litigation, but it is also protected from other kinds of litigation. If the Will-maker’s beneficiary, such as an adult child, is a business person, or someone else who is at risk of being sued, or who might become bankrupt, then having the property stored in a testamentary trust will be an advantage to that beneficiary. Like the divorce court, the bankruptcy court, in some situations, can ignore trust arrangements, but, again, as a general rule, trust property is more likely to be left alone, especially if the bankrupt beneficiary is not also the trustee and is not controlling the property for his/her own use.
Testamentary Trusts mat have tax advantages for beneficiaries. If the Will-maker’s child is grown up and not financially dependent on him or her, then, when the person dies and leaves that child an inheritance, a tax may apply to some parts of the estate, e.g. superannuation death benefit payments. If the person leaves 2 or 3 children, therefore, each of those payments may be taxed, depleting the size of the estate. If the entire estate is put into a Testamentary Trust, however, with the children as beneficiaries, the taxation happens differently. Furthermore, each of the beneficiaries can ask the trustee of the testamentary trust to give them their benefits from the trust in a way that is most advantageous to them, from a taxation point of view.
WOULD YOU LIKE MORE INFORMATION?
These are some, but not all of the reasons why a Testamentary Trust could be the best option for you. If you would like to explore this option further, please contact us for a no-obligation discussion.
If you live in Perth or Western Australia and would like to discuss having a Testamentary Trust Will made, please call us on (08) 6460-5460. (This article is not intended as legal advice for any specific person, but rather as a general informational discussion, and reflects the law that applied in Australia at the time of writing.)