Testamentary Trust Wills: What Exactly Are They?

29 May

This blog is for informational and educational purposes only. It does not constitute legal advice, nor financial advice. You should seek personalised legal advice before making any decisions about your estate planning or will.

Testamentary trusts are one of the most potent estate planning tools available in Australia.

What You Need to Know About Testamentary Trusts:

→ They can reduce tax for your family
→ They can protect your inheritance from bankruptcy and family law risks
→ You don’t need to be super-rich or have complex assets
→ You only get one chance—your will must include the trust in order to use it
→ The cost of compliance is minor compared to the tax advantages
→ They only begin upon your death—so no ongoing obligations while you're alive
→ When in doubt, favour using a testamentary trust

01 What is a Testamentary Trust?

A testamentary trust—or discretionary testamentary trust—is a trust created by your will that comes into effect only after you die. Similar in structure to a family (discretionary) trust, it appoints a trustee (or trustees) who decide, at their discretion, which beneficiaries receive income or capital from the trust. This structure provides strong asset protection and tax flexibility, since the assets aren't personally owned by beneficiaries.

The key features:

Appointor (sometimes called the principal or guardian) has the power to remove and replace the trustee, making them a key control figure in the trust structure
Trustee manages the assets and decides distributions
Discretionary beneficiaries have no fixed entitlement—only the right to be considered by the trustee

02 Key Benefits of a Testamentary Trust

✔️ Relationship & Family Law Protection
Assets held in trust are generally excluded from your beneficiary’s personal asset pool, safeguarding inheritance from divorce or separation disputes, but they may still be treated as a financial resource or subject to scrutiny depending on control and access.

✔️ Protects Minor or Vulnerable Beneficiaries
If you have young children or beneficiaries who may struggle with financial decisions, a trustee can oversee distributions until they’re mature enough—even setting staged access until an age you choose.

✔️ Superior Tax Advantages
Income generated by trust assets can be distributed to beneficiaries in lower tax brackets. For minors, the tax-free threshold applies, rather than penalty tax rates. This could mean significant tax-free support for education, living costs, and more.

✔️ Asset Protection for High-Risk Beneficiaries
If a beneficiary works in a high-liability profession or is at risk of bankruptcy or legal claims, assets in a testamentary trust may remain intact.

03 Real-World Scenarios Where a Testamentary Trust Makes Sense

Case Study A: You Have Children Under 18
Leaving assets via a testamentary trust ensures control remains with a trustee and protects inheritance—even if your spouse remarries or new family law claims emerge. Income can support schooling or living expenses tax-free, for each child.

Case Study B: Children or Grandchildren Over 18
A testamentary trust still offers protection—keeping assets safe from relationship breakdowns or bankruptcy—and allows continued tax-effective distributions for future generations.

04 Is a Testamentary Trust Right for You?

It’s really important to speak with a lawyer and your financial adviser or accountant to ensure a testamentary trust suits your specific circumstances.

But as a general rule of thumb, consider including one in your will if any of the following apply:

✔️ Your estate (including super and life insurance) is likely to exceed $500,000
✔️ You’re leaving assets to minors who could benefit from tax-effective income distributions
✔️ You want to protect the inheritance from potential relationship breakdowns or bankruptcy
✔️ You’re concerned a beneficiary may not manage their inheritance wisely.

Testamentary trusts can provide powerful, long-term benefits—but they need to be structured properly from the outset. If you're unsure, it's worth getting tailored advice to protect your legacy.

→ The Bottom Line

Testamentary trusts offer unmatched flexibility, protection, and tax benefits. More than just a will, they’re a strategic tool to safeguard your legacy and support your family for generations.

But remember: you only get one chance—this powerful option must be written into your will.

→ Ready to Protect Your Legacy?

Get your will drafted with a testamentary trust included from the start—so your loved ones benefit, long after you’re gone.

Want custom advice tailored to your family? Book an appointment with Jan Juc Legal today to set up a lawyer-prepared testamentary trust will that fits your needs.

Bex McAllum