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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