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Legal > Asset Protection & Trusts Law

Testamentary Trusts:

Overview FAQs Articles Locations

A testamentary trust is a trust established by the terms of a will, rather than by a trust deed or a court order. The benefit and appeal of a testamentary trust is that it allows the testamentary to have a level of control of estate assets, the timing and structure of any distributions. This is often referred to conceptually as to ‘rule from the grave’. This may be beneficial if you wish to enhance the value of an inheritance for an intended beneficiary or to protect an intended beneficiary who is vulnerable because of age or inadequate decision-making capacity, for instance, a minor or legally incapacitated person. An experienced Asset Protection and Trusts Lawyer may have regard to your circumstances and advise you of the various testamentary trusts which may be compatible with your goals and expectations.

There are various types of testamentary trusts, each with its unique benefits and costs. An executor-controlled testamentary trust (ECTT) is a testamentary trust created in which the legal personal representative (LPR) generally acts as the trustee of the testamentary trust. Alternatively, where the testamentary trust is a substitute for an inheritance that would otherwise pass to the beneficiary, the testamentary trust tends to be a beneficiary-controlled testamentary trust (BCTT). The key difference between the ECTT and BCTT is the ability of the primary beneficiary, rather than the executor as the testator’s LPR, to control the operation of the testamentary trust. By contrast, a principal beneficiary has no such control, although the trustee will usually have to consult the principal beneficiary or (if appropriate) the carer of a principal beneficiary (or both). In addition to testamentary trusts established wholly or principally for non–charitable beneficiaries, there are a range of philanthropic trusts that can be established by will. Comprehensive and sound legal advice in this area of complex, intricate law may be of immense value in determining the appropriate testamentary trust structure that is compatible with your ambitions.

A key reason for including one or more testamentary trusts in a will is asset protection for the primary or principal beneficiary. There is significant protection that a testamentary trust offers against the creditors of a primary or principal beneficiary. Thus, testamentary trusts are a means of ensuring that a primary or principal beneficiary does not forfeit an inheritance because of bankruptcy. This means that in practice testamentary trusts offer an increased, rather than absolute, level of Family Law asset protection for a primary beneficiary. Generally, an Australian Family Court considers that the assets of a testamentary trust do not form part of the resources available in a domestic relationship. Obtaining sound legal advice from an Asset Protection & Trusts Lawyer may ensure that your assets are adequately protected in a testamentary trust from bankruptcy and family breakdowns.

Furthermore, a testamentary trust can provide various taxation benefits superior to a standard will. For instance, a testamentary trust can generate “excepted trust income” for beneficiaries who are minors. This means that the trust income is not subject to the penalty rates that otherwise apply to a minor’s non-personal exertion income.  Also, testamentary trusts or non-fixed testamentary trusts can be used to fund the education or maintenance of a child or grandchild. In addition, Capital Gains Tax (CGT) concessions apply to the transfer of estate assets in and out of testamentary trusts. Holistic and solid advice in Wills and Estates Law may be of great value in formulating a testamentary trust which is suitable for your requirements.

If you need further legal advice on your matter, you may book an appointment with us by telephone or by email to info@navado.com.au. Alternatively, you may book an appointment to see one of our skilled legal experts at one of our branch offices. For a complete listing please see our "Locations" tab.

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This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.

  • Asset Protection Jan 23, 2012
  • Trusts Jan 23, 2012
  • Should I set up a trust? Jan 23, 2012
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