Hemmings Legal

Estate planning is about more than simply writing a Will. For many families, a Testamentary Trust can provide an extra layer of protection, flexibility and financial security. A Testamentary Trust is created under your Will and only comes into effect after your death. It ensures your estate is distributed in a way that not only reflects your wishes but also safeguards your beneficiaries.

At Hemmings Legal, we often recommend Testamentary Trusts for clients who want to do more than leave a straightforward inheritance.

Why Consider a Testamentary Trust?

There are several compelling reasons why Testamentary Trusts are becoming more popular in Victoria.

Tax Benefits

One of the most attractive features of a Testamentary Trust is its ability to provide tax advantages. Income earned from investments within the trust can be distributed among beneficiaries in a tax-effective manner. For example, distributions made to minor children are taxed at adult tax rates, which may significantly reduce the overall tax burden on the family.

Asset Protection

Assets held in a Testamentary Trust may be shielded from claims by creditors or from division during a relationship breakdown. This makes Testamentary Trusts particularly valuable for families with business interests or beneficiaries who may face financial difficulties.

Flexibility in Distributions

Unlike a simple gift in a Will, a Testamentary Trust allows the trustee to decide how and when beneficiaries receive their inheritance. This can be especially useful for young children or beneficiaries who may not be ready to manage a large sum responsibly. Trustees can also adapt distributions over time to meet changing needs.

Learn more about the importance of having a valid Will in Victoria to understand the foundation of your estate plan.

Who Benefits Most from a Testamentary Trust?

While anyone can establish a Testamentary Trust, they are especially beneficial for:

• Families with young children: The trust can provide financial security until children are old enough to manage their inheritance.
• Blended families: A trust can ensure fairness and clarity when distributing assets between children from different relationships.
• Families with significant assets: Trusts can help manage property, investments, and business assets in a structured way.
• Beneficiaries at risk: If you are concerned about a child or relative facing bankruptcy, divorce, or poor money management, a Testamentary Trust can protect their inheritance.

If you are interested in broader estate planning, read our post on common reasons to update your Will.

How Testamentary Trusts Work

A Testamentary Trust is established within your Will. When you pass away, your estate (or part of it) is transferred into the trust. The trustee, who you nominate, then manages the assets on behalf of the beneficiaries.

The trustee has discretion to decide how and when distributions are made. This flexibility means that assets can be protected and income can be distributed in the most effective way.

It is important to appoint a trustee who is responsible, trustworthy, and financially capable. Some people appoint a family member, while others prefer to appoint a professional trustee.

Real-World Examples

• A parent with young children leaves their estate in a Testamentary Trust. The trustee uses the funds for school fees, medical expenses, and general support until the children turn 25, at which point they can take direct control of the assets.
• A business owner creates a Testamentary Trust to ensure that their business continues to operate smoothly after their death. The trustee manages the business for the benefit of the family while protecting it from creditors.
• A person with a child going through a divorce leaves their inheritance in a Testamentary Trust. The trust structure helps protect the assets from being included in divorce proceedings.

Executors often need to apply for probate before assets are transferred into a trust. Learn more in our article on probate in Victoria.

The Takeaway

A Testamentary Trust is one of the most powerful tools in estate planning. It offers tax benefits, protects assets, and provides flexibility in looking after your loved ones. By including a Testamentary Trust in your Will, you are not just leaving an inheritance, you are creating a structure that ensures long-term security and peace of mind.

At Hemmings Legal, we make the process straightforward and tailored to your family’s needs. Whether you are considering your first Will or updating an existing one, we can help you decide if a Testamentary Trust is right for you.

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Ready to Protect Your Family’s Future?

Contact Hemmings Legal today to discuss how a Testamentary Trust can form part of your estate plan. We provide clear, practical advice to ensure your assets are protected and your loved ones are cared for long into the future.