A Testamentary Trust is a series of Trusts set up in a Will. Like a normal Will, you still need to have the executor and alternative executors. The Executor of course being the person who carries out the wishes of the Will Maker.
Beneficiaries can be left assets in their sole name or they can be left in a testamentary trust or a discretion can be given to the beneficiary and/or the executor as to whether the asset is to be in a testamentary trust or a trust that has specific powers such as a disability trust which has benefits not affecting pensions or the assets to them in their own right.
One of the main benefits of a testamentary trust is that the income from assets can be spread across a beneficiaries family and dependents and therefore reducing the tax payable. The children as beneficiaries in testamentary trusts are taxed as adults so therefore the first $8,000 to $10,000 of income is tax free rather than the children being the beneficiaries of a normal trust where any income is taxed at 48c in the dollar.
Another significant benefit of a testamentary trust is that if assets are left to a beneficiary who is bankrupt or are in some form of financial difficulties then as the asset is in a trust and not in the beneficiaries sole name, the asset is protected from the trustee in bankruptcy.
There can also be benefits if the beneficiary is in a relationship there can be some protection from the Family Court depending on how the set up and who has control of the trust. If a beneficiary has control of the trust then the Family Court can still get access to assets in the trust if however, it is another person and there arranged beneficiaries then it is more difficult for the Family Court to attack assets in the trust.
Aired September 2012 on Radio 2RG