What Are Some Examples of Testamentary Trusts?
A testamentary trust is a powerful estate planning tool that helps you control how your assets will be managed and distributed when you pass away. But what does a testamentary trust look like beyond definitions and legal jargon?
In this article, we’ll walk through real-life examples of testamentary trusts, showing how they protect families, minimise tax, and support beneficiaries with additional needs. These examples highlight why working with experienced testamentary trust lawyers can considerably enhance your estate plan.
What is a testamentary trust?
A testamentary trust is a legal structure set out in your Will. It appoints a trustee to manage specific assets held in trust for your beneficiaries. This kind of trust is not activated until you pass away, and it provides significant benefits like asset protection, tax advantages, and tailored control over how income from the trust is distributed.
To learn more about the basics, read our full article:What is a Testamentary Trust?
Why use a testamentary trust?
The decision to create a testamentary trust is often motivated by one or more of the following goals:
Safeguarding assets for your direct lineal descendants, i.e. your bloodline
Protecting a child or vulnerable family member
Ensuring inheritance is managed wisely
Reducing tax through income splitting
Protecting assets during divorce or bankruptcy
Providing organised support across generations
Let’s explore how these objectives come to life through real examples.
1. Supporting minor children
Scenario: A couple with two young children dies unexpectedly. Their Will includes a testamentary trust where a family member is appointed trustee. The trustee manages the children’s inheritance until each child reaches 25.
Why it works: The trustee can release funds for school fees, healthcare, or general support, ensuring the children are cared for without receiving a large lump sum when they turn 18.
This is one of the most common uses of a testamentary trust and offers tax benefits and long-term stability. Learn more about these advantages in our article: Benefits of a Testamentary Trust
2. Protecting a child with a disability
Scenario: A parent sets up a testamentary trust for their adult daughter with an intellectual disability. The trust appoints a trusted sibling as trustee to manage her financial needs throughout her lifetime.
Why it works: This arrangement guarantees consistent financial support while safeguarding her entitlement to disability support and protecting the assets from possible financial mishandling.
3. Navigating complicated family situations
Scenario: A man with two children from a previous relationship remarries. He structures his Will so that his current wife receives income distributed from a testamentary trust during her lifetime, while the remaining capital goes to his children after her passing.
Why it works: The trust provides for the current spouse while protecting assets for future generations, an important consideration in stepfamilies.
See how this differs from a standard Will in our blog: What is the Difference Between a Will and Testamentary Trust?
4. Protecting inheritance from divorce settlements
Scenario: A daughter is going through a divorce. Her parents structured her inheritance to be held in a discretionary testamentary trust, rather than given to her outright.
Why it works: Because she doesn’t directly own the assets, they’re significantly more protected from property settlements and third-party legal claims.
We compare this structure to others in our article: Testamentary Trust vs Family Trust
5. Managing tax and capital gains efficiently
Scenario: Parents want to leave an inheritance to their children and grandchildren in a tax-effective way. Their Will creates a testamentary trust that allows the trustee to distribute income based on each beneficiary’s tax position.
Why it works: Testamentary trusts allow income to be taxed at individual marginal rates, even for children under 18, offering considerable tax benefits compared to standard family trusts.
This flexible structure is part of what sets testamentary trusts apart. Learn how testamentary trusts differ from other trust types in:Understanding the Differences Between Testamentary and Discretionary Trusts.
How to set up a testamentary trust that works
Setting up a testamentary trust requires expert legal guidance. Your Will needs to specify:
The type of trust
The assets held
How and when the income is distributed
Who will act as trustee of the testamentary trust?
Our team ensures your trust is designed for your family’s needs, from start to finish.
For guidance on how trusts work in Queensland, you can also visit the Queensland Public Trustee – About Trusts, which explains the responsibilities of trustees, types of trusts, and common uses in estate planning.
Choosing the Right Testamentary Trust for Your Family
Every family has different needs. Whether protecting young children, supporting a loved one with a disability, or managing risks like divorce or bankruptcy, a testamentary trust gives you more control over how your assets are passed on.
These examples show how flexible and practical this type of trust can be. With the right legal advice, you can create a structure that reflects your wishes, protects your estate, and gives your family lasting peace of mind.
Speak to our testamentary trust lawyers for precise, professional guidance on setting up the right trust for your situation.
