The phrases ‘testamentary trust’, ‘testamentary discretionary trust’, TT, TDT…. are all just ‘lawyer speak’ for a trust set up in a will that starts when the will-maker dies.  It sounds complicated, but they are essentially the same as a family trust (more technically known as a discretionary trust).  The only real difference is a testamentary trust is established by a person’s Will and remains dormant, ready to start only when a person dies.

Under the terms of the simple Will your executor takes charge of the assets of your estate, pays your creditors and forthwith divides the net estate among your beneficiaries in accordance with the terms of your Will.

However, a testamentary trust Will operates quite differently.  Your executor will take charge of the assets of your estate and pay your creditors as usual.  However, rather than simply distributing the estate to the beneficiaries, the executor must then transfer control of the net assets of the estate to the trustees of the testamentary trusts created by the Will.  The trustees will then hold the trust assets on the terms of the testamentary trusts for the benefit of the beneficiaries named in those trusts.  Once the transfer to the trustees has taken place, the role of the executor is practically complete, and the estate would then generally operate much in the same way as a typical discretionary family trust may operate.

Testamentary trusts range from trusts which are fixed or discretionary as to the payment of income or capital and to a wide range of beneficiaries or a limited range of beneficiaries.  This includes having different classes of beneficiaries such as income only and capital only beneficiaries.

Testamentary trusts can be used for asset protection, tax planning opportunities, perceived family law protection and as a means to look after vulnerable beneficiaries. 

For tailored advice on how testamentary trusts can be used in your estate plan, contact us for an estate planning consultation.