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Testamentary Trust

In simple terms, a testamentary trust is created through a person’s Will and is an arrangement that entails a person – the trustee – holding particular assets for the benefit of another – namely the beneficiary – as per the terms set out by the trustor of the trust, until a certain time.

Following on from the above definition, there are several parties involved in a testamentary trust:

1. The trustor – This is the person who elects to create the trust.
2. The trustee – This is the person who administers the Will as per the instructions in the Will.
3. The beneficiary or beneficiaries – This is the person or people who will receive the assets held by the trust.
4. The appointor – This is the person with the capacity to remove and appoint a trustee.

The previously mentioned ‘particular assets’ may include anything accumulated for the estate of the trustor in the course of their lifetime (e.g. investment properties), or assets attained as a consequence of the trustor’s passing (e.g. the proceeds from a term life insurance policy).

It is not until the death of the trustor that the trust is in effect, and how the trust is in effect is dependent upon the terms outlined in the Will. However, it is important to note that a testamentary trust may be of the discretionary type and consequently the distribution of the assets is at the trustee’s discretion, and may not necessarily reflect the contents of the Will. Furthermore, given that the appointor has the capacity to remove and appoint a trustee, it would be wise to nominate a ‘third party’ as the appointer to ensure impartiality in the appointment of the trustee and the distribution of the assets.

So why create a testamentary trust?

There are various reasons why an individual chooses a testamentary trust over other estate planning vehicles, and the reasons largely relate to personal circumstances, tax advantages and asset protection. The reasons for establishing a testamentary trust are largely associated with the advantages this vehicle affords a beneficiary.

Avery Gibson Financial Services Pty Ltd (ABN: 45 119 229 980) is a corporate authorised representative of Plan 2 Pty Ltd (ABN: 60 010 875 073), an Australian Financial Services Licensee. (Licence No. 237874)