Testamentary trust vs simple will: which do you need?

The short comparison

A simple will gives each beneficiary their share outright. Once the executor transfers it, it is theirs personally — in their bank account, in their name, exposed to their circumstances.

A testamentary trust will gives each beneficiary their share inside a trust. They usually control it, but they do not own it personally. That single difference produces the tax and protection outcomes below, and the extra cost.

• Cost to prepare — simple will: modest. Testamentary trust will: from $2,200 incl GST, complex estates quoted
• Ongoing cost — simple will: none. Trust: a tax return and trustee resolutions every year the trust runs
• Tax on inherited income — simple will: taxed at the beneficiary's marginal rate. Trust: can be split, including to minor children at adult rates
• Protection from a beneficiary's creditors or separation — simple will: none. Trust: meaningful, though not absolute
• Control — simple will: ends at transfer. Trust: continues through the trustee and appointor for up to 80 years
• Protection from a will challenge — neither. A family provision application can be made against the estate either way

When a simple will is the right answer

If your estate is a home, some super and a modest amount of cash, going to financially settled adult children who will pay off a mortgage or bank it, a simple will is the right document. There is no income stream to split, no meaningful risk to protect against, and the annual compliance cost of a trust would be dead money.

The same is true for most couples leaving everything to each other. What matters far more in that situation is that the will is valid, the executor is the right person, super and jointly-owned property are dealt with properly, and your enduring power of attorney is in place.

When a testamentary trust earns its cost

There are five situations where we regularly recommend one:

• A beneficiary has young children — income can be distributed to the grandchildren at adult tax rates each year
• A beneficiary is in business, is a company director, or has given personal guarantees
• A beneficiary's relationship is unstable, or you want the inheritance to stay in the bloodline
• A beneficiary has a disability, an addiction, or cannot manage money — provision without a lump sum
• The inheritance is large enough to be invested rather than spent, so it will keep producing income

The middle option people miss

You do not have to choose one for the whole estate. A will can leave one child's share outright and hold another child's share in trust. It can also give a beneficiary the option to take the money outright or run the trust, decided after your death when their circumstances are known.

That optional or discretionary approach is often the best value. It costs the same as a testamentary trust will to draft, and it means the structure does not become a burden on a beneficiary who does not need it.

What to do next

The decision usually takes one conversation. We will look at your assets, your beneficiaries and the actual risks, and tell you plainly if a simple will does the job. Call 0488 340 853 or send an enquiry and we will confirm the fixed fee before any work starts.

Choosing between a simple will and a testamentary trust