A testamentary trust can be an upgrade to a simple will

A testamentary discretionary trust only begins to operate upon the testator’s death.

This type of trust is set up to hold and manage assets for a specified group of people called beneficiaries. The beneficiaries are the testator’s loved ones such as family members and friends.

The benefits of a testamentary trust

1. Tax management

One of the key benefits of a Will which includes a testamentary discretionary trust is the potential to manage the tax payable by your estate and beneficiaries. The structure of a testamentary discretionary trust allows the trustee or trustees to distribute income and assets to beneficiaries in a tax-efficient manner, reducing the overall tax liability of the estate. Because it is a discretionary trust, the trustee may choose the most tax-advantageous distribution based on the beneficiaries' individual tax situations. For example, with a testamentary trust the adult tax-free threshold that applies to children under the age of 18 means the trustee of the trust can distribute up to $18,200 in income to each child in the trust tax free.

Click here to contact us and find out about more the advantages of testamentary trusts.

2. Asset Protection from Creditors

Another key benefit of a Will which includes a testamentary discretionary trust is the protection it provides from creditors. This can be useful for beneficiaries who are at risk of legal action, such as business owners or professionals, or for those who are at risk of bankruptcy. The assets held within the testamentary discretionary trust can be protected from creditors as the assets are not in the beneficiaries’ personal name, they are in the name of the trust.

3. Protection from Marriage Breakdown

A Will including a testamentary discretionary trust can provide some protection for assets in the event of a marriage breakdown of a beneficiary. The assets held in a discretionary trust are not automatically considered part of the beneficiary’s matrimonial estate depending on the circumstances.

4. Protection for Children

Lastly, but perhaps most importantly, a Will which includes a testamentary discretionary trust can provide financial protection for young children or financially dependent children by naming the guardian or adult to manage the assets for the benefit of the children while they are too young to make decisions on their own.

The testamentary trust allows the children to benefit from the assets in a responsible and controlled manner without the risk of mismanagement or irresponsible spending. When the children are old enough to begin managing the assets themselves, they can then be appointed trustees of the trust.