Benefits of a testamentary trust for Australian families
Tax savings, asset protection, flexibility, and control. Here are the five concrete benefits a testamentary trust delivers.
Testamentary trusts provide five main benefits: tax advantages for minor beneficiaries, asset protection from divorce and creditors, flexibility in distributions, control by a chosen trustee, and planned succession of the trust itself. Families with young beneficiaries or complex circumstances typically gain the most.
Tax: the big one
Distributions of income to minor beneficiaries (children under 18) are taxed at adult marginal rates in a testamentary trust, not the 66% penalty rate that otherwise applies. Over a child's minority, this can save tens of thousands of dollars in tax.
Asset protection from divorce
Inherited assets held in a testamentary trust are often treated differently from matrimonial property in a divorce. Courts increasingly recognise this protection, particularly where the trust was not used as a joint asset during the marriage.
Asset protection from creditors and bankruptcy
A beneficiary's creditors generally can't reach assets in a discretionary testamentary trust. This matters for beneficiaries running businesses, with guarantee exposure, or with other creditor risk.
Control and flexibility
The trustee can manage distributions over time, pay for specific purposes (education, health, housing), and respond to beneficiaries' changing circumstances. A 22-year-old who would waste a lump sum can receive structured distributions instead.
Succession planning
Testamentary trusts can extend across generations. The trustee can pass to the next generation, and distribution powers can continue. This is particularly valuable for families wanting to preserve wealth across multiple generations.
Summary
Tax savings, asset protection, flexibility, and control. Here are the five concrete benefits a testamentary trust delivers.
Talk to Sam about your situation
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.
Related reading
- What is a testamentary trust?
- Testamentary trust tax advantages explained
- Testamentary trusts service
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.