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The Advantages of a Testamentary Trust

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Testamentary Trusts, MST LawyersWhen planning your estate, ensuring your loved ones are protected and your assets are distributed according to your wishes is paramount. One powerful tool to achieve this is a testamentary trust.

By incorporating a testamentary trust into your Will, you can unlock a range of benefits that provide greater control, flexibility, and security for your beneficiaries. Let’s explore why a testamentary trust could be the right choice for you.

A testamentary trust offers several significant benefits, including:

  • Greater control and flexibility over the distribution of assets to beneficiaries
  • Flexible estate planning for blended families
  • A level of asset protection
  • Tax benefits
  • Benefits for vulnerable persons

What is a Testamentary Trust?

A testamentary trust is a discretionary trust created within a Will, which comes into effect after the will-maker’s death. Upon death, the assets are transferred directly to the trustee of the testamentary trust. The trustee then controls the trust and the distribution of its assets to the nominated beneficiaries.

Advantages of a Testamentary Trust

  1. Asset Protection

A testamentary trust provides a separation between the Trustee and the beneficiary, creating a level of asset protection. This protection can be beneficial in various situations, such as legal actions involving the beneficiaries or personal matrimonial disputes faced by beneficiaries.

  1. Flexibility for Complex Family Structures

Estate planning can be particularly complex when blended families are involved. A testamentary trust offers the flexibility needed to deal with assets in these situations and provides a level of asset protection for the nominated beneficiaries. For example, in a blended family scenario, the will-maker can provide for a current spouse or partner while preserving assets for nominated residual beneficiaries.

  1. Tax Benefits

A testamentary trust can help beneficiaries reduce the tax paid on income earned from inheritance. For instance, beneficiaries can distribute income to a range of potential beneficiaries, including underage beneficiaries, and apply the adult tax threshold to underage beneficiaries when distributing trust income.

  1. Protecting Vulnerable Beneficiaries

Testamentary trusts are especially beneficial for vulnerable beneficiaries, such as individuals with intellectual disabilities, addiction problems, or gambling issues, which could lead to the dissipation of an inheritance. Assets held in a testamentary trust are protected from a beneficiary’s creditors to a certain degree, as the beneficiary has no access to the assets until the trustee determines the trust’s distribution. This protection helps safeguard vulnerable beneficiaries’ inheritance from loss.

How to Create a Testamentary Trust

Testamentary trusts are established within a Will and must be drafted correctly to protect your assets and fulfil your wishes. It is crucial to consult a solicitor when creating a testamentary trust to ensure everything is set up properly.

For further assistance or to discuss this topic, please contact Andrea Olsson at our office on 03 8540 0200.