Protecting Wealth


Testamentary Trusts are a popular structure for protecting family wealth.

We are often asked how they operate and whether they are worth establishing.

Testamentary Trusts are created by your Will. On your passing, it springs to life as a new legal entity in your place. It has its own Tax File Number, Australian Business Number and even files its own Income Tax Return.

If you are familiar with Family Trusts, then your standard Testamentary Trust is the version of that, coming into existence upon your passing with your Assets passed to the Trust.

Your Executors and Trustees manage the Trust on behalf of the Beneficiaries, which normally include your children and their lineage. Income and Capital is distributed at the discretion of the Trustees, so that Beneficiaries can be protected.

They can last as long as 80 years, or if drafted on a discretionary basis, may be terminated at the direction of the Trustees.

While assets remain in the Trust it should be noted:

• The assets will not form part of that Beneficiary’s assets and liabilities, and should not form part of any matrimonial or de facto pool;

• If a Beneficiary is self employed those assets are unlikely to be exposed to creditors; and

• If a Beneficiary is or becomes incapacitated, or vulnerable to drugs, gambling or other financially dissipating activities, a stream  of income can be set up by the Trustees. This is an alternative to a lump sum being dumped on the Beneficiary, as is the case in most simple Wills.

In essence, your assets are potentially protected from your children for their benefit. This can be comforting if an adverse event should occur.

The Trustees have a range of powers in relation to managing and investing the assets of the Trust. Essentially it can generally undertake activities that an individual person can do. This may include buying and selling assets, borrowing or lending, developing or renting.

They can also be tax effective, and you could consult your Accountant in that regard.

Testamentary Trusts provide an option to children (and their lineage) – they can elect to retain, or if not wanted in their initial format for any reason, can be altered, split into more than one Trust, or simply closed down.

If there is wealth, combined with a desire to protect children from themselves, Testamentary Trusts should be seriously considered.

p: (03) 9620 2001