How to set up a testamentary trust in your will
Setting up a testamentary trust happens inside the will – not separately. Here's the drafting structure and key decisions.
A testamentary trust is established by provisions within your will. The will drafts the trust structure, names the trustee, defines beneficiaries, sets distribution powers, and specifies vesting rules. The trust activates on your death – assets flow from the estate into the trust according to the will's terms.
Core drafting decisions
Trustee selection: who runs the trust? Often a surviving spouse, or an adult child, or a professional trustee. Succession for the trustee is critical – name at least two substitutes.
Beneficiary class: who can benefit? Usually children, grandchildren, and sometimes spouses and parents. Define clearly.
Distribution powers: how much discretion does the trustee have? Typical testamentary trusts give the trustee broad discretion to distribute income and capital to any beneficiary in the class.
Letter of wishes
Most testamentary trusts are paired with a ‘letter of wishes’ – a non-binding document giving the trustee guidance about how the testator would have wanted distributions made. The letter is private and updatable, unlike the will itself.
Vesting rules
A testamentary trust can last for decades but must eventually vest (wind up and distribute). SA trusts typically have an 80-year maximum. The vesting rule should direct who receives the trust's assets at the end.
Cost
A will with testamentary trust provisions typically costs $1,500 to $3,500 at drafting. Complex trusts with multiple beneficiary classes and detailed distribution rules cost more. Ongoing administration during the trust's life has its own costs – trustee fees, accountant fees.
Coordination with super and life insurance
Super and life insurance can be directed to the testamentary trust through a binding death benefit nomination naming the estate, or directly to the trust. Coordination is key – un-coordinated nominations can defeat the whole structure.
Summary
Setting up a testamentary trust happens inside the will – not separately. Here's the drafting structure and key decisions.
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If this article raised questions for your own circumstances, Sam Michele offers free 20-minute initial consultations. Learn more about our testamentary trust work, or book a consultation.
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Disclaimer: This article is general information only and does not constitute legal advice. Estate planning is deeply personal - every family's circumstances are different. For advice specific to your situation, please contact Rosewood Succession Solicitors.