Testamentary Trusts: The Estate Planning Strategy That Could Save Your Family Thousands

At Aspire Lawyers, we’ve seen too many families face unexpected disputes, tax bills and financial stress because a simple Will didn’t go far enough.

A Testamentary Trust (or Testamentary Discretionary Trust) is one of the most effective estate planning tools available, yet many people have never heard of it.

In this article, drawn from our recent live webinar, we’ll explain how a Testamentary Trust works and how it can protect what matters most: your loved ones, your legacy, and the assets you’ve worked hard to build.

What Is a Testamentary Trust?

A Testamentary Trust is a trust created in your Will that only comes into effect after your death.

It works like a family trust: a trustee you appoint manages assets for the benefit of your chosen beneficiaries (often your children, grandchildren or spouse).

Because it’s discretionary, your trustee decides when and how to distribute assets based on each beneficiary’s circumstances at the time and not when the Will was written. This flexibility makes it incredibly powerful.

The Key Benefits of Testamentary Trusts

1. Asset Protection

A Testamentary Trust can safeguard your children’s inheritance from:

• Divorce settlements

• Bankruptcy or business creditors

• Poor spending habits or mental health challenges

If a beneficiary faces financial difficulty, the trustee can manage their inheritance to protect it.

2. Tax Savings

Income distributed to children under 18 from a Testamentary Trust is taxed at adult rates, not punitive child rates.

• This can mean up to $18,200 tax-free per child, per year.

• Trustees can also split income between beneficiaries to minimise the family’s overall tax bill.
  This can save thousands of dollars in tax every single year.

3. Flexibility and Control

Unlike a simple Will, a Testamentary Trust can adapt as circumstances change.
If one child faces divorce, illness or unemployment, distributions can be adjusted.
Trustees can also provide for grandchildren, charities or even in-laws if that becomes appropriate.

Real-Life Examples

Young Family (Emma & Jack)
Emma and Jack died suddenly, leaving two young children. A Testamentary Trust allowed their sister to manage funds for schooling and living expenses, tax effectively, and delay full access until the children were mature.

Blended Family (Michael & Lily)
Michael wanted to support his new partner Lily while ensuring his children from a previous relationship inherited later. A Testamentary Trust allowed Lily to live in the home and receive income, with capital passing to the children after her death.

Grandchildren (Helen)
Helen wanted to leave money to her grandchildren but worried their parents might misuse it or face divorce. A Testamentary Trust let her appoint a trusted person to manage the funds safely for the grandchildren’s benefit.

Disability Support (Raj)
Raj’s son receives Centrelink benefits. A Testamentary Trust allowed the trustee to supplement his needs without affecting his entitlements, and worked alongside a Special Disability Trust.

Wealth Protection (James)
James has $5 million and three adult children in varied situations. Separate Testamentary Trusts protected each child’s inheritance, allowed income splitting, and created long-term flexibility to manage the family’s business interests.

Testamentary Trust vs Simple Will

Setting Up a Testamentary Trust

Setting up a Testamentary Trust requires:

• A specially drafted Will

• Choosing trustees and (optionally) an appointor

• Selecting your classes of beneficiaries

• Providing clear distribution guidelines

It’s not something to DIY, it must be tailored to your family’s needs to work properly.

Next Steps

Your legacy deserves more than a standard Will.

If you want to find out whether a Testamentary Trust is right for you, book a free 15-minute consultation with our Wills & Estates team.

📞 Call us on (03) 9743 1333
🔗 Or book online here