Most wills give assets to people. A will containing a testamentary trust gives assets to a structure that holds them for those people. That single difference changes how the inheritance is taxed, how exposed it is to a beneficiary's creditors, and how well it survives a divorce — which is why it is one of the most useful estate planning tools available to Australian families.
What is a testamentary trust?
It is a trust created by your will that only comes into existence when you die. The terms are written into the will now, but nothing operates until the estate is administered. Instead of a beneficiary receiving assets outright, the assets pass to a trustee who holds and manages them under the terms you set. You choose who benefits, who controls the trust, and how long it runs — commonly for the beneficiary's lifetime, with the remainder passing to their children.
What are the tax advantages?
The most significant one concerns children. Unearned income of a minor is normally taxed at penalty rates above a very low threshold, which makes leaving money in a child's name inefficient. Income distributed from a testamentary trust to a minor is generally taxed at ordinary adult marginal rates instead, so each child effectively has access to the tax-free threshold. For a family with several grandchildren, that difference compounds meaningfully over the years the trust runs. The trustee can also vary distributions each year in line with each beneficiary's circumstances, much as a family trust does during your lifetime.
How does a testamentary trust protect assets?
Because the beneficiary does not own the assets outright, those assets are harder to reach. In a relationship breakdown, a properly structured trust makes the inheritance more difficult to characterise as the beneficiary's personal property in a family law settlement — the protection is not absolute, and a court will look at how much control and access the beneficiary really has, but it is far stronger than a direct gift into a joint bank account. The same logic applies where a beneficiary works in a profession with personal liability exposure, or has a history of financial difficulty. It also allows you to provide for a beneficiary with a disability, an addiction, or simply poor money judgement without handing over a lump sum.
Who should control the trust?
This is the decision people rush, and it determines whether the structure achieves anything. If the goal is flexibility and tax efficiency for a capable adult child, appointing them as their own trustee is usually fine. If the goal is protection from a creditor or a spouse, giving that beneficiary sole control substantially weakens the position. Options include a co-trustee arrangement, an independent professional trustee, or separating the appointor role — the person who can hire and fire trustees — from the trustee role itself. Whoever you choose should be told, and should understand what the job involves.
How does a testamentary trust fit with super and business assets?
Carefully, because neither flows through your will automatically. Superannuation is directed by your fund's rules and any binding death benefit nomination, which can be made to your legal personal representative so the benefit is paid to the estate and then into the trust — but that must be arranged deliberately. Business interests need their own attention: shares held personally can pass into a testamentary trust, while assets held in a company or existing family trust do not form part of your estate at all. Estate planning for a business owner is only complete when the will, the shareholder agreement, the trust deeds, and the super nominations all point the same direction.
Does every family need one?
No, and it is worth saying plainly. A testamentary trust adds cost to draft and ongoing administration afterwards — annual tax returns, trustee decisions, and records to keep for as long as it runs. For a modest estate passing to financially settled adults, a straightforward will does the job better. The case strengthens when there are minor or vulnerable beneficiaries, a blended family, meaningful assets, or a beneficiary whose circumstances make an outright gift risky.
What should you do once the will is signed?
Make sure it can actually be found and acted on. An executor who does not know the will exists, cannot locate the original, or has no idea which accounts, insurances, and digital assets you held will spend months reconstructing your affairs. Keep the original with your solicitor and a record of where it is with your key documents; services such as Custodium Vault exist to hold that information securely for the people who will need it. Then review the will after any major change — a marriage, a separation, a birth, a business sale — because a testamentary trust drafted for a family that no longer exists in that shape can do more harm than good.
Testamentary trusts sit at the intersection of tax, structure, and family circumstances, which is why they benefit from advice on all three. The Metier Group works with Perth families and business owners on wills and estate planning that fits the structures they already have. Contact us to talk through whether a testamentary trust suits your situation.