Testamentary Trusts

A testamentary trust is a trust created by a will and comes into effect when the person making the will passes away. Testamentary literally means relating to or appointed through a will.

When writing a will, the deed (which is the wording that creates the trust), is actually written into the will itself.

A testamentary trust is often used when parents die, leaving minor children behind who are unable to manage their own financial affairs.  It is a vehicle through which a Trustee appointed (chosen) by the will maker can manage an inheritance for the benefit of the minor children until they reach adult age (or an age pre-determined by the will maker).

The example above can be further applied where a beneficiary (or beneficiaries) is of adult age, but may benefit from protections offered by a testamentary trust. For example:

  • addiction (e.g. gambling, drugs, alcohol)
  • financial mismanagement
  • creditor protection
  • disability.

With so much effort going into the building of wealth over a lifetime, a testamentary trust can be a very effective estate planning tool to reduce tax for beneficiaries, provide protection from creditors or from the beneficiaries themselves. There are a range of other benefits and costs worth considering. If you would like to know more, please contact us.