Testamentary trust wills

It is a trust created by your will that only comes into existence when you die. Instead of a beneficiary receiving their inheritance outright, it is held in a trust they usually control, and income and capital are distributed from it. It is a will structure, not a separate trust you set up now.

From $2,200 including GST for a will containing a testamentary trust. That is the fixed fee, quoted before we start, and it covers taking your instructions, advising on the structure, drafting and executing the will. Complex estates — blended families, business or company and trust interests, self managed super funds, rural land or overseas assets — are quoted individually before we begin.

Income distributed from a testamentary trust to a beneficiary's minor children is taxed at ordinary adult marginal rates with the full tax-free threshold, rather than the punitive minor rates that apply to ordinary trust distributions. For a family with young children inheriting an income-producing estate, that can be a meaningful saving every year the trust runs. Anti-avoidance rules limit the concession to assets that actually came from the estate — we explain the boundaries.

Broadly: estates with real assets producing income, beneficiaries with young children, a child in a shaky marriage or with creditor exposure, a beneficiary with a disability or who cannot manage money, a blended family where you want to provide for a spouse but protect the children of a first relationship, and business or investment assets you want kept intact. If the estate is a modest home and some super going to two independent adults, an ordinary will is usually the right answer and we will say so.

It helps, but no structure is bulletproof. Family courts can look at what a party controls and what they receive. A trust that is genuinely discretionary, with the right person as appointor, keeps the inheritance out of the pool far better than money paid into a joint account — which is what happens with an ordinary will.

A family (discretionary) trust is set up while you are alive, holds assets now, and has ongoing costs and compliance from day one. A testamentary trust exists only in the wording of your will until you die, costs nothing to maintain in the meantime, and carries the minor-beneficiary tax concession that a family trust does not.

The trust has to be administered — a tax file number, an annual return, trustee resolutions before 30 June, and accounting fees each year. Beneficiaries who want the money in their own name can find it irritating. It is a live structure, not a set-and-forget clause, and it should only go in the will if the benefit outweighs that ongoing work.

Typically the beneficiary is the trustee of their own trust and can appoint income and capital among a class of family members. You can instead appoint an independent trustee, or split the roles by naming an appointor with the power to remove the trustee — which is the usual approach where a beneficiary is vulnerable, addicted or under external pressure.

Generally the will is redrawn rather than amended by codicil, because the trust provisions interact with the whole document. It is one appointment and the same fixed fee.