What is a Testamentary Trust?

A Testamentary Trust is a discretionary trust established under a will and it does not come into existence until the death of the person who made the will.

Upon the death of a person who has left their estate to a Testamentary Trust, the estate assets pass to the trustee of the Testamentary Trust and not directly to any individual beneficiary.

The main beneficiary of a Testamentary Trust is usually called “the primary beneficiary” and a Testamentary Trust also has other beneficiaries which usually include blood relatives.

If the main beneficiary of the Testamentary Trust is an adult, then he or she is frequently appointed as the Appointor and Protector.

The Appointor has the power to “hire and fire” the trustee and as such occupies a crucial position.

The Protector’s function is to protect the interests of the main beneficiary against untoward actions of the trustee should the primary beneficiary not be the trustee.

If the main beneficiary is a child or someone who needs assistance in looking after their own financial circumstances due to vulnerability or disability, then some other trusted person can be appointed to act as Appointor of the trust.

The trustee of a Testamentary Trust has the discretion to distribute the trust fund to any beneficiary at the trustee’s discretion and as such, combined with other mechanisms contained in the Testamentary Trust, provides asset protection from creditors, some protection in family law disputes, and tax saving opportunities say, by splitting income including distributing income to minor beneficiaries whom enjoy favourable tax treatment.

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