Testamentary Trusts
Wills & Probate
Key Takeaway
Testamentary trusts are trusts established within a will that take effect upon the death of the will-maker.
Testamentary trusts are trusts established within a will that take effect upon the death of the will-maker. They offer significant advantages in asset protection, tax planning, and control over how beneficiaries receive their inheritance. We advise on when testamentary trusts are beneficial and prepare the necessary documentation to incorporate them into your estate plan.
Unlike inter vivos trusts (established during lifetime), testamentary trusts are created by the will and only come into existence upon death. They provide flexibility in distributing income and capital to beneficiaries, protect assets from creditors and former spouses, and can provide for vulnerable beneficiaries without outright gifts that may be mismanaged.
Tax Advantages of Testamentary Trusts
One of the most significant advantages of testamentary trusts is the tax flexibility they provide. Testamentary trusts allow income to be streamed to beneficiaries with lower marginal tax rates, including minor children who are taxed at adult rates on income from testamentary trusts (rather than the penalty rates that apply to minors receiving income from other trust structures). Capital gains on the sale of estate assets can also be distributed to beneficiaries best placed to utilise capital gains tax concessions, potentially resulting in substantial tax savings for the family group.
Asset Protection & Creditor Management
Assets held in a testamentary trust are owned by the trust, not by the beneficiary personally. This means that if a beneficiary faces financial difficulties, divorce, or bankruptcy, the trust assets may be protected from creditors and property claims. However, the level of protection depends on the specific trust provisions and the trustee's discretion. We structure testamentary trusts to maximise asset protection while maintaining appropriate beneficiary access to trust assets, and advise on the interaction between trust provisions and family law property settlements.
Blended Family Estate Planning
Testamentary trusts are particularly valuable in blended family situations where each partner has children from previous relationships. A testamentary trust can provide for the surviving spouse during their lifetime while ensuring that the capital ultimately passes to the children of the first deceased partner. This balances the need to provide for a current spouse with the desire to preserve assets for children from a prior relationship. The trustee (often the surviving spouse and an independent trustee) manages distributions, and the trust terms prevent the surviving spouse from redirecting assets away from the intended ultimate beneficiaries.
Testamentary Trusts FAQs (Queensland Law)
How is a testamentary trust established in Queensland?
At our firm, a testamentary trust is established by provisions within a will. It comes into effect upon the testators death. The trust deed (the will) appoints trustees, defines beneficiaries, and sets out the trust powers and distribution rules.
What are the tax benefits of testamentary trusts?
Under this provision, our team helps clients understand their rights. under s 102AG of the ITAA 1936, income from testamentary trusts distributed to minor beneficiaries is taxed at adult rates rather than penalty rates applying to minors from other trusts. This can result in significant tax savings for families.
Who can be appointed as a trustee of a testamentary trust?
At our firm, the trustee can be an individual (family member, friend, or professional) or a corporate trustee. Professional trustees (e.g., Public Trustee, law firm, accounting firm) offer expertise and continuity but charge fees. Multiple trustees can be appointed.
How does trust distribution discretion work?
At our firm, the trustee has discretion to distribute income and capital among beneficiaries as they see fit, subject to the trust deed. This flexibility allows tax-effective streaming and asset protection, as beneficiaries have no fixed entitlement until distribution is determined.
How do testamentary trusts provide asset protection?
At our firm, assets held in a testamentary trust are owned by the trust, not the beneficiary. This protects assets from creditors, bankruptcy, and family law property claims. The level of protection depends on the trusts structure and the trustees discretion.
Testamentary Trusts Services
- Testamentary trust will preparation
- Individual and discretionary testamentary trust structures
- Testamentary trust for minor beneficiaries
- Special disability trusts for beneficiaries with disabilities
- Asset protection through testamentary trust provisions
- Income streaming and tax-effective distribution advice
- Trustee appointment and succession planning
- Trust deed preparation within estate plan
- Review and update of testamentary trust provisions
- Advice on trust distributions and taxation
- Mixing testamentary trusts with blended family estate planning
- Succession planning for testamentary trust trustees
Last updated: July 2026
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