Testamentary trust

August 30th 2022 | Categories: Aged Care |


In simple terms, to set up a trust, one person transfers property to a second person to be held for the benefit of the third. The person who transfers the property is called the “grantor” or the “settlor”. The recipient of the property is called the “trustee”, and they are the person/entity who take legal title of the transferred property. A trustee may also be a beneficiary – provided they are not the only beneficiary.


The beneficiary

A trust deed spells out what the trustee needs to do with the property.

The beneficiary is the person the trust is created for.

The beneficiary may have a present interest or remainder (future) interest in the trust.

A beneficiary has a present interest if they have a right to immediate benefits (eg distributions of trust income).  A beneficiary has a remainder interest if the beneficiary’s benefits will not begin until some time in the future (eg number of years or the death of a named individual).

A testamentary trust is a trust created by a Will, becoming active when you die.  Instead of your assets passing directly to your beneficiaries, they pass into a trust. The trust is then controlled by a trustee, who you appointed in your Will.   The Will details how the trust will work and records its terms and conditions, which can be drafted to suit your needs.


How Can Testamentary Trusts Help With My Estate Planning?

Trusts are used for a variety of purposes in estate planning including:


Example: Income Splitting In A Testamentary Trust

Mark has determined that his family needs $30,000 pa net to maintain their lifestyle if he dies.

Scenario 1

Mark passes away, leaving an insurance policy of $500,000 to his wife Maria to provide income and maintain a lifestyle with no specific provision for his two young children.

Let’s assume the income earned by Mark’s wife will be taxed at 46.5%, the highest marginal rate.


Scenario 2

If Mark’s estate is instead used to set up a testamentary trust with his wife and children being named as beneficiaries, the family can take advantage of tax-effective income splitting.

Income earned by the children in this particular situation is not subject to tax at penal rates. It is taxed at adult rates and attracts the full benefit of the low-income tax offset.


Please speak to your solicitor to determine whether a testamentary trust is appropriate for you.


What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.