Five reasons why you need a Testamentary Trust
When making plans for your Estate many people believe that drafting a standard Will automatically ensures that your Beneficiaries receive your gifts to them. However in many cases, unforeseen or remote events occur which threaten the gift left to your Beneficiary.
This is where a Testamentary Trust can be beneficial. A Testamentary Trust commences upon the death of the Testator, and allows for a Trustee to hold your Estate and deal with it on Trust for your Beneficiaries. In effect it creates a separate entity which has control over the property once you have passed away, and who can distribute it to your Beneficiaries in accordance with the powers you grant them.
There are a number of reasons why a Testamentary Trust may be required.
1. Asset Protection
Gifts under standard Wills are vulnerable as they are often available to the Trustee in Bankruptcy. Therefore, if any of your Beneficiaries are at risk of going bankrupt, there is a distinct possibility that they may not receive the benefit of your gift which will instead go towards paying off Creditors. The Trustee of the Testamentary Trust will have a discretion when and how to give the gift to the Beneficiary, and as such, a Testamentary Trust can protect your assets and ensure they go where you intend them to go.
2. Enduring Legacy
Another benefit of a Testamentary Trust is that it can operate for many years, as such you can set up the Trust so that your children, grandchildren and great-grandchildren can benefit from your Estate. Alternatively, depending on the Terms of the Trust, it can be wound up and distributed when the Beneficiaries agree or when the beneficiary reaches a certain age. Testamentary Trusts therefore can provide for a range of options which are flexible and can be utilised for a broad range of life’s possibilities.
3. Beneficiaries who are unable to care for their own assets
A Testamentary Trust may also be used when a Beneficiary is unable to look after their financial needs. While a Beneficiary may be the Trustee of their own Trust, you may alternatively choose to appoint another person to act in this role on behalf of the Beneficiary. This may be used when, for example, a beneficiary is a minor or has a mental or physical incapacity and may require assistance in exercising their finances.
Alternatively, where a Testator is concerned that their Beneficiary is financially irresponsible and will use the money left to them irresponsibly, for example, on gambling or an addiction, a Testamentary Trust can be established to protect the funds and Beneficiary. This may occur, for example, where the Trustee only gives the Beneficiary a monthly allowance out the Trust Funds.
4. Family Law
As interest in a Testamentary Trust may provide greater protection for Beneficiaries in the event of a Family Law proceeding than would a straight out gift. If your Beneficiary is at risk of a breakdown in their relationship with a spouse or partner, then a Testamentary Trust can assist in protecting your property from being given to your Beneficiary’s ex-spouse or partner.
5. Tax reasons
Testamentary Trusts can also have a number of Taxation benefits for Capital Gains Tax as well as Taxations issues for the Beneficiaries themselves. Please contact an Accountant if you are interested in the Taxation benefits of a Testamentary Trust.
How We Can Help
It is your legacy, so you should know where it is going. If you are concerned that your estate may not be distributed the way that you want it to be once you are gone, it is worth considering setting up a Testamentary Trust. Call our office on (07) 3667 8966 to set up an initial meeting and have one of our experienced solicitors walk you through the process.
Charlotte Streten – Paralegal