Not having a proper Will is a cruel thing to do any family. A well drafted Will gives peace of mind not only to the Will Maker but those they care most about.

Thoughtful estate planning is a must. The risk of family wealth being lost through a child’s bankruptcy or a bad marriage can be avoided or minimised through careful and considered estate planning. The importance of having your Will drafted with care and reviewed regularly cannot be overstated.

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1. Discretionary testamentary trusts.

  • Allows the beneficiary to use, invest, change and control assets freely.
  • Generally the beneficiary is also the trustee of their own trust. A third party can be appointed trustee in place of, or in addition to, the beneficiary where there is good reason. Examples include where the beneficiary is facing bankruptcy, matrimonial problems or has limited capacity to manage their own finances.
  • Generally few restrictions are placed on how the trustee is to manage or maintain the assets. The trustee can dispose of all assets as he or she sees fit. Once you leave the assets to a beneficiary by way of this type of trust, the trustee/beneficiary will have total control, unless restricted through the intervention of a third party trustee whose consent is required.
  • This type of trust provides maximum flexibility for tax purposes.
  • It also provides protection of assets for your beneficiaries from third parties in the event of bankruptcy or family breakdown.

Expanded detail of discretionary testamentary trusts.

Principle Advantages of incorporating Testamentary Trust in Wills.


1.1 Taxation Benefits.

Trust income distributed to children under the age of 18 is taxed at normal individual tax rates. Accordingly, there will be a tax-free threshold each year for each child. The current tax-free threshold is $18,200 (which will increase depending upon low income rebates), which is significantly higher than the tax-free threshold of $772 where distributions are made to children under family trust deeds. Where there are several children the tax relief can be very significant, particularly where there are a number of years until the children attain the age of 18.

Subject of course to future changes in the law.

1.2 Capital Gains Tax.

Capital gains can be ‘streamed’ to one or more beneficiaries who are able to take better advantage of the five year averaging rule or CGT losses. Accordingly, the tax on capital gains ultimately payable on realised assets can be considerably reduced where one or more of the designated beneficiaries have a low income in the year of distribution.

Subject of course to future changes in the law.

1.3 Creditors Protection.

Under a normal Will, if a beneficiary is experiencing solvency difficulties or is already bankrupt at the time of a distribution, it is likely the gift will end up in the hands of creditors rather than for the intended benefit of the beneficiary. This need not be the case where a testamentary trust is used, as the beneficiary has not actual entitlement to a distribution until the trustee so determines. Accordingly, assets can be retained within the family, free of creditor’s claims.

Subject of course to future changes in the law.

1.4 Family Law considerations.

A parent may wish to prevent a child’s spouse making a claim against the family assets in the event of marriage breakdown. If testamentary trusts are used, a child’s spouse would ordinarily have no right to claim that a gift by a parent forms part of the matrimonial property which is to be divided, although it may be treated as a resource available to the spouse.


However, the beneficiary has the discretion (if a discretionary trust is used) to deal with the trust assets in such a way that they do become matrimonial property if the trustee so wishes.

Subject of course to future changes in the law.

1.5 Incapacity.

In the event that a beneficiary is temporarily incapacitated, trusts will enable the assets to be managed by the family or professionals for the benefit of the beneficiary rather than having a portion of the estate controlled by an external agency.

1.6 Superannuation and Insurance Proceeds.

Where testamentary trusts are used, the individual or his estate can be nominated as the beneficiary of superannuation or insurance proceeds. In this way, flexibility can be retained and the level of distribution to respective dependants, depending on the circumstances prevailing at the relevant time, can maximise the preferential tax status of the proceeds.

1.7 Flexibility.

Testamentary trusts generally provide complete flexibility both as to the nature of the investments of the trust and as to the distribution of income and assets of the trust. Trusts can be validly created for up to 80 years and, accordingly, can benefit two or three generations. Alternatively, the trusts can be dissolved at any time and distributions made to the desired beneficiaries.

2. Vulnerable beneficiaries - Capital protected trusts.

This type of trust is designed to protect and preserve assets for the benefit of a beneficiary or for future generations. They are often used where:

  • There is a concern that the beneficiary is unlikely to be able to manage their own financial affairs by reason of drug or gambling addiction or psychiatric illness.
  • You wish to maximise the chances that assets will survive the beneficiary for the benefit of a subsequent generation.
  • A protective trust enables you to pre-determine some degree of control or influence over the way the assets can be used or accessed by your beneficiaries.
  • Terms of such trusts will often only allow the beneficiary to obtain an income stream from the trust and additionally (but optional), to access only a limited portion of the capital assets in any year (e.g. 5% per year).
  • Where a beneficiary has problems managing money, you can appoint a third party as trustee of the trust. Often the executors of your estate are appointed the trustees of protected trusts. If, on the other hand, you are using a capital protected trust to ensure the capital goes to a future generation but you can rely upon your initial income beneficiary to manage the trust assets, then the initial income beneficiary can be appointed the trustee rather than a third party.

3. Special disability trust - SBT - Wills for severely disabled adult children.

SBTs are specific forms of trust and may provide special taxation relief. For example, trusts set up for a disabled person to provide for accommodation and health issues may qualify for special taxation treatment which may allow the disabled person to receive social security benefits.

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"John Cockburn helped in my in a very trying process with my late parents estate. It was a blessing to have his support and guidance on the legal processes and my responsibility as a co-executor. He was my go to person, who always had answers on every matter. I highly recommend seeking John's services for your legal matters as he is a highly qualified professional in the legal field. Thank you John."

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