What is a Testamentary Trust?
A testamentary trust is a trust established by a Will that comes into existence upon the death of the testator (the person making the Will). Creating a testamentary trust provides an alternative from giving a gift to a beneficiary absolutely. Instead, the gift is given to the trustees of the trust (usually the executors of the Will), to distribute to the intended beneficiary at a later time.
Benefits of Testamentary Trusts
Including a testamentary trust in your Will can have various benefits, including:
- Providing trustees with flexibility and the ability to respond to the changing circumstances of various beneficiaries;
- Protecting your assets from being squandered by an irresponsible beneficiary;
- Providing an avenue to protect assets that are intended for a disabled/ underage beneficiary; and
- Various taxation benefits.
Pitfalls of Testamentary Trusts
Whilst testamentary trusts have the potential to provide numerous benefits, they are not without their drawbacks. Namely:-
- The cost of having your Will prepared will be increased and there will be ongoing administrative costs once the trust comes into existence;
- Your affairs may be unnecessarily complicated; and
- A great responsibility and onus is placed on trustees to administer the trust.
Who should include a Testamentary Trust in their Will?
The inclusion of a testamentary trust should be considered by all persons making a Will, however, they will not be suitable to everyone.
Testamentary trusts may prove particularly useful in the following cases:-
- Where there is a large asset pool;
- Where the minimisation of tax will be particularly important to beneficiaries; and
- In families with young and/or disabled children.
For more information about testamentary trusts and how they can benefit you, please contact the experienced team at Everingham Solomons because Helping You is Our Business.
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