A ‘Testamentary Trust’ is a trust established under a Will which only comes into existence after the death of the will maker.
A testamentary trust is usually a discretionary trust which means that the Trustee has full discretion as to which beneficiaries receive income and/or capital from the trust and how much.
The Trustee of a discretionary trust can be one of the beneficiaries, a number of the beneficiaries or an independent third party. As the Trustee has control of the trust it is a very important role.
There can be a number of benefits of setting up a testamentary trust which arise from the fact that the trust itself is the beneficiary under the Estate and owns the assets rather than an individual beneficiary owning the assets.
Some of the benefits of testamentary trusts include:
- Tax advantages
- Minor children are treated as adults for tax purposes and qualify for tax free thresholds
- The trigger for capital gains tax can be delayed
- People with disabilities or high risk behaviour or spendthrifts
- If beneficiaries, for whatever reason, are not able to effectively manage their own money then setting up a testamentary trust that is controlled by someone else can ensure that the beneficiary receives a suitable income and/or capital from the trust but the assets are protected to ensure longevity of the funds for that beneficiary or for future generations.
- Assets held in a testamentary trust are more likely to be seen as a financial resource for the beneficiary rather than a matrimonial asset.
- Asset protection
- If assets are held in a testamentary trust rather than by the beneficiary directly they are more likely to be protected from creditors.
Just like any Will, testamentary trusts can be, and should be, tailored to meet the individual needs and circumstances of the will maker and their beneficiaries.
Please contact us if you would like any further information about testamentary trusts.