Testamentary
Trusts
Tax advantages and asset protection for beneficiaries — created through your Will, taking effect on death.
Testamentary Trusts
A testamentary trust is created through your Will and comes into effect on your death. Unlike a straightforward gift to a beneficiary, assets held in a testamentary trust are managed by a trustee for the benefit of the beneficiaries according to the terms set out in your Will. The trust can provide significant tax advantages and asset protection — benefits that a direct inheritance cannot offer.
The principal tax advantage is that income distributed from a testamentary trust to minor beneficiaries (children under 18) is taxed at adult marginal tax rates rather than the penalty rates that normally apply to minors receiving investment income. For an estate with income-producing assets — an investment property, share portfolio, or business income — this can produce substantial tax savings over the life of the trust and meaningfully increase the benefit received by your family.
Testamentary trusts also offer asset protection: assets held in the trust are generally protected from a beneficiary's creditors, legal claims, and in most cases from property settlements if the beneficiary's relationship breaks down. This makes them particularly valuable for beneficiaries who are in business, in a volatile relationship, or at risk of financial difficulty. We advise on whether a testamentary trust structure suits your estate and draft the trust provisions within your Will — working in conjunction with your accountant or financial adviser where the tax considerations are complex.
A testamentary trust is created within your Will — it is not a separate document. We draft the Will and the trust provisions together, ensuring they work as an integrated whole that achieves your estate planning goals.
Wills — full details →A testamentary trust is one tool in a broader estate plan. We consider it alongside your Will, powers of attorney, superannuation nominations, and asset structure — to ensure your overall plan achieves what you intend.
Estate planning — full details →For family business owners, a testamentary trust can be a key component of a succession plan — providing a structure for managing business assets and income after death while protecting the interests of non-business beneficiaries.
Succession planning — full details →Testamentary trusts are one part of a broader Wills and Estates practice. See the full range of services we offer — from Will drafting and probate to contesting a Will and letters of administration.
Wills and estates — all services →Protecting your legacy
beyond your lifetime.
A testamentary trust is not just a tax structure — it is a way of extending your care and judgment to your beneficiaries after you are gone. Getting the terms right matters: who is the trustee, who are the beneficiaries, what discretion does the trustee have, and when does the trust end?
We work through these questions carefully and draft trust provisions that reflect your intentions accurately. Where the tax implications are significant, we work with your accountant to ensure the structure achieves the outcome you are seeking.
Not every estate benefits from a testamentary trust. We give you an honest assessment of whether the complexity and ongoing administration costs are justified by the benefits — and recommend the structure only when it makes genuine sense for your family.
Testamentary trusts FAQs
A testamentary trust is a trust created by a Will that comes into effect on the death of the Will-maker. The Will sets out the terms of the trust — who the trustee is, who the beneficiaries are, and how the assets are to be managed and distributed. The trustee holds and manages the trust assets for the benefit of the beneficiaries. A single Will can create multiple testamentary trusts — for example, a separate trust for each child's share of the estate.
Income distributed from a testamentary trust to minor beneficiaries (children under 18) is taxed at adult marginal tax rates rather than at the penalty rates that normally apply to minors receiving unearned income (which can reach 47%). For a family with young children receiving investment income from an estate, this difference can be very significant — potentially saving tens of thousands of dollars in tax over the life of the trust. This is the most commonly cited reason for using a testamentary trust.
Testamentary trusts are particularly valuable for: families with minor children (tax benefits and controlled distribution until adulthood); blended families where you want to protect the interests of children from a previous relationship; beneficiaries who are in business or at risk of creditor claims; beneficiaries in volatile relationships where you want to protect inherited assets from a property settlement; and beneficiaries with a disability, special needs, or financial vulnerability. Not all estates benefit — we assess your specific circumstances honestly.
Once the Will-maker has died, the trust terms are fixed by the Will and generally cannot be changed unilaterally. However, the trustee typically has discretion over how income and capital are distributed within the terms of the trust. In some cases, beneficiaries may be able to apply to the court to vary the terms of the trust, but this is complex and not guaranteed. It is important to draft the trust terms carefully at the time the Will is prepared — we work through the key decisions with you in detail.
Yes, ongoing administration is more complex than a simple estate distribution. The trust must be registered with the ATO, annual tax returns must be lodged, trustee decisions must be documented, and the trustee has ongoing legal obligations. These costs are real and should be weighed against the benefits — particularly for smaller estates where the tax savings may not justify the administrative burden. We give you an honest assessment of whether the structure makes sense for your estate before recommending it.
Is a testamentary trust right for your estate?
We advise on the structure and draft the trust provisions within your Will.