When most people hear the term “testamentary trust,” they assume it’s something reserved for the ultra-wealthy. But in reality, these powerful estate planning tools can benefit almost any family — even those with modest estates.
A testamentary trust is a trust that’s created through your Will, and only comes into effect after you pass away. The main reason more advisers and estate lawyers are recommending them? Because they offer greater control, protection, and tax flexibility for your beneficiaries.
🛡️ Protecting the Next Generation
Imagine you leave your assets directly to your children. Sounds simple. But what if one of them is:
Going through a divorce
Facing a lawsuit
Struggling with debt or addiction?
Without a testamentary trust, those assets could be lost to family court claims, creditors, or poor decisions.
With a testamentary trust, your child doesn’t legally “own” the inheritance — the trust does. This:
Protects the assets
Still provides ongoing access to the beneficiary
Keeps the money out of reach from third-party claims
💸 Smarter Tax Outcomes
A testamentary trust can also lead to significant tax savings, especially if your beneficiaries have children of their own.
Example:
Let’s say your adult child:
Earns a six-figure income
Receives a $500,000 inheritance
If invested in their own name, the earnings are taxed at their marginal rate (potentially up to 47%).
But in a testamentary trust:
Income can be split with children or grandchildren
Each child under 18 can receive up to $416/year tax-free
Beyond that, earnings are taxed at adult rates, which is much lower than standard minor tax rates
Over time, this income splitting can result in tens of thousands of dollars in tax savings.
📋 Flexibility You Can Build Into Your Will
Testamentary trusts can be:
Discretionary (trustee decides how and when money is distributed)
Fixed (terms are locked in)
You can choose:
Who the trustee is (often your child, with a backup trustee)
What the trust can fund (e.g. education, housing, health)
How long the trust runs (up to 80 years in NSW)
You can also add backup instructions if your intended beneficiaries pass away before the trust is established.
💭 Final Thoughts
Testamentary trusts aren’t just about money. They’re about:
Control
Protection
Flexibility
Future-proofing your family’s wellbeing
In today’s world — where families are more complex and tax is real — even a modest estate of $300,000 to $500,000 can benefit greatly from a testamentary trust.
It’s not about having millions.
It’s about protecting what you’ve built — for those you love.
Speak to your financial adviser and estate planning lawyer about whether a testamentary trust could be right for your Will. financialsuccess@simonwu.com.au