(08) 8088 5346

TESTAMENTARY TRUSTS

With the growing emphasis on wealth distribution, willmakers are now giving thought to the establishment of testamentary trusts through their wills. The concept of the testamentary trust to deal with estate assets is not a new concept, but is one that has re-emerged as an effective estate-planning tool. It is through the careful drafting of a testamentary trust will that a willmaker may achieve his / her estate planning objectives.

What is a Testamentary Trust?

A testamentary trust is a trust established by a will that comes into effect upon the death of a willmaker. The term ‘testamentary trust’ is used to describe a number of forms of trusts that result from the death of a willmaker.

Example

  • beneficiary testamentary trust, otherwise referred to as the discretionary will trust;
  • estate testamentary trust;
  • superannuation proceeds trust;
  • restricted trust; and
  • discretionary life interest.

Discretionary will trust

The most common type of testamentary trust is the beneficiary testamentary trust or discretionary will trust. Rather than an asset passing into the personal name of a beneficiary (as with a simple will) under s discretionary will trust, the asset passes to a trustee who holds the estate assets on trust for the beneficiary and a category of other discretionary beneficiaries.

This option must be specifically contained in the will.

Who controls a discretionary will trust?

The will usually specifies who will be the trustee. The trustee makes all decisions regarding the management of the trust. However, effective control of the trust rests with the person/s who has the power to remove and appoint the trustee. This person is usually called the ‘appointor’ or ‘guardian’.

Typically, one of the beneficiaries is usually the trustee and the appointor. However, the trustee and the beneficiary can be different people if the willmaker does not want the beneficiary to have complete control of the trust. This is often the case where the beneficiary is suffering from a legal disability or is likely to be unable to appropriately manage the trust.

Beneficiaries of a discretionary will trust

The beneficiaries of an estate who are given the option of taking their entitlement, as beneficiaries of a discretionary will trust are usually termed ‘primary beneficiaries’.

The will may also provide for an additional class of discretionary beneficiaries who can receive income and capital from the discretionary will trust at the trustee’s discretion.

To maximise flexibility, the class of discretionary beneficiaries should be drafted widely and should include immediate family and other relatives of the primary beneficiary. In addition, other potential discretionary beneficiaries such as associated trusts, charitable organisations and related companies could also be included.

Example

Examples of potential beneficiaries of a discretionary will trust include:

  • the primary beneficiary;
  • the primary beneficiary’s spouse;
  • the siblings of the primary beneficiary and the primary beneficiary’s spouse;
  • the spouse and descendants of any of the above beneficiaries and the spouse of such descendants;
  • religious and charitable funds or institutions; and
  • associated trusts and companies.

Duration of a discretionary will trust

Once established, in most jurisdictions, a discretionary will trust has a maximum life span of 80 years. The will should be drafted to allow the trustee the discretion to end the trust at any time prior to the expiration of the 80-year period.

This brochure has been completely extracted from:

The Wealth Builder
Strategies, structures and plans for maximising personal wealth
CCH AUSTRALIA LIMITED
GPO Box 4072, SYDNEY NSW 2001
Head Office North Ryde
Phone: (02) 9857 1300
Fax: (02) 9857 1600
Customer Support
Phone: 1300 300 224
Fax: 1300 306 224
www.cch.com.au

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

CLIENT ACCESS

This content is restricted to member access only. Members view links to content pages or login below. If you are not a member and wish to apply to join our website please contact us.

Member Login

WHAT’S NEW

This content is restricted to member access only. Members view links to content pages or login below. If you are not a member and wish to apply to join our website please contact us.

Member Login