My wife and I are reviewing our Wills and wanted to know if testamentary trusts are still a valid way to protect our financial affairs when we die?

A testamentary trust is incorporated into your Will. Your assets are held in this trust rather than passing directly to the beneficiaries, thereby providing a greater level of protection over the assets.

Hi Louis, thanks for your question.

Yes, they are. Creating a testamentary trust through your Will can help protect assets. They can be particularly useful where beneficiaries:

  • have potential risk issues, such as:
    • a business interest
    • are in an occupation where it is possible they might be sued
    • at risk of being declared bankrupt.
  • are under 18
  • have special needs.

They can also protect assets from claims by your children’s spouses or partners if their relationship ends.

Other benefits of a testamentary trust include:

  • Flexibility in relation to restricting access to assets or distributions to a particular beneficiary
  • Ability to distribute income to optimise tax planning
  • Tax effective for children under 18 receiving income from a testamentary trust, as they are taxed as though they are adults rather than the penalty tax rates that otherwise apply to minors.

Things to consider

There are ongoing costs involved in maintaining a testamentary trust, such as tax returns. If a professional is appointed as trustee then there will be fees for that service.

Day-to-day control of a testamentary trust is carried out by the trustee. It is therefore important that the trustee is someone that you can be sure will act in the best interests of the intended beneficiaries of the trust.

Is a testamentary trust right for you?

Whether you should include a testamentary trust in your Will depends on your particular circumstances and needs. You would need to obtain expert advice from a qualified legal professional to ensure the trust deed is drafted appropriately.

The information contained in these responses are not legal, taxation or accounting advice. It is intended to provide general information only. It has been prepared without taking into account your objectives, financial situation or personal needs. Prior to making any investment decisions, you should speak with a financial adviser to consider whether this information is appropriate for your needs, objectives and circumstances. You should also obtain a copy of the relevant product disclosure statement (PDS) prior to making a decision regarding any investment in any financial product. Whilst care has been taken in the preparation of this information, the accuracy or completeness of the information is not guaranteed. This case study was prepared and issued by UniSuper Management Pty Ltd ABN 91 006 961 799, AFSL No: 235907, which is also the administrator of, and wholly owned by, the UniSuper Superannuation fund (ABN 91 385 943 850). UniSuper Limited (ABN 54 006 027 121) is the trustee of the fund. UniSuper Advice is operated by UniSuper Management Pty Ltd, which is licensed to provide financial product advice to members.

Answered by Renee Bilske

Renee-Bilkse

Renee provides financial advice for clients looking to keep their financial plan on track over time.

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