Testamentary Trusts

If you’re planning your estate and want to provide both flexibility and protection for the next generation, a testamentary trust might be the most powerful tool at your disposal. Testamentary trusts are increasingly becoming a preferred strategy in modern estate plans - particularly for those who want to safeguard their children’s inheritance, protect assets in the event of a relationship breakdown, or create a lasting legacy across multiple generations. 

At Vicca Law, we’ve seen a significant rise in clients choosing to include testamentary trusts in their Wills. In fact, around 9 out of 10 Wills we’ve prepared this year have included one. In this article, we’ll explore how they work, why they’re so beneficial, and when they might be the right option for you. 
 

What Is a Testamentary Trust? 

A testamentary trust is a type of trust created through a Will. Unlike family trusts that are established during your lifetime, a testamentary trust only comes into effect once you pass away. The terms of the trust including who manages it and how assets are distributed are set out in your Will which includes the terms of your trust deed. 

Here’s a simplified breakdown of how a testamentary trust works: 

• Trustees: These individuals control the trust and manage the assets on behalf of the beneficiaries. 

• Beneficiaries: The people who benefit from the trust (typically your children or grandchildren). 

• Appointer: A person with the power to remove and replace trustees, adding an additional layer of control and oversight. 

Importantly, the assets aren’t owned by the beneficiaries directly. They’re owned by the trust, which means they can be protected from claims, creditors, and relationship breakdowns. 
 

Two Key Reasons People Choose Testamentary Trusts 

While there are many benefits, the two most common reasons people choose a testamentary trust are: 

1. Protecting Minor Children 

For parents of young children, whether in an intact relationship or separated - a testamentary trust offers peace of mind. It allows you to: 

• Appoint trusted adults or guardians to manage your children’s inheritance until they reach a certain age or maturity level. 

• Maintain control and transparency, with clear accounting requirements. 

• Prevent an ex-partner (or the child’s other legal guardian) from gaining control of the inheritance. 

• Access potential tax benefits, such as distributing income to minor children tax-free up to a certain threshold (currently $22,000 per year in Australia). 

You can also build in flexibility, such as setting a specific age (e.g., 30) when your children can take over as appointers or trustees themselves. 

2. Protecting Adult Children in Relationships 

Many clients with adult children are increasingly concerned about how a future divorce or separation could affect the inheritance they leave behind. Testamentary trusts provide a layer of protection by ensuring that inherited assets are not treated as personal assets in a relationship breakdown. 

At Vicca Law, we build in what’s known as a “disqualification trigger”—a clause that automatically removes a trustee if they experience a significant life event, such as divorce, bankruptcy, or incapacity. This helps ensure the assets remain protected and are not included in the asset pool during family law proceedings. 

Here’s a simple example: 

Let’s say your daughter receives $1 million through your estate. If she divorces a year later and received that money outright, it may be considered part of the relationship asset pool. But if the money is held in a testamentary trust that she doesn’t control directly (especially during a relationship breakdown), it’s far more likely to be excluded from the pool. 
 

Other Benefits of Testamentary Trusts 

• Asset protection for beneficiaries with poor financial management: If you’re concerned a child may not handle a lump sum wisely, a trust allows someone else to manage the funds on their behalf. 

• Long-term legacy planning: Testamentary trusts in Queensland can last up to 125 years. This means you’re creating a multigenerational structure to benefit your children, grandchildren, and beyond. 

• Tax planning flexibility: With the help of an accountant, testamentary trusts can offer considerable flexibility around income distribution and tax planning (note: always seek specific financial and taxation advice). 
   

Can You Have Multiple Testamentary Trusts? 

Yes. In fact, if your children don’t get along or you want each child to have full autonomy over their share, you can establish separate testamentary trusts for each. We generally recommend having at least $500,000 per trust for it to be cost-effective. 
 

Final Thoughts: Is a Testamentary Trust Right for You? 

If you're looking to create a legacy that protects your loved ones long after you’re gone, a testamentary trust is one of the most powerful tools you can use. Whether you’re concerned about protecting your children's inheritance from future ex-partners, planning for their financial maturity, or just want to future-proof your estate plan, this structure offers flexibility, control, and peace of mind. 

At Vicca Law, we believe your estate plan should reflect the life you’ve built and the people you love. That’s why testamentary trusts have become a cornerstone of the way we help clients protect their legacy. 
 

Ready to Talk About Testamentary Trusts? 

If this article has sparked your interest or raised questions about your current Will, book a consultation with me, Lidia Vicca. 

You can also explore more of our estate planning articles or sign up for our newsletter for ongoing tips and legal updates tailored to Queensland families. 

Your legacy matters - let’s make sure it’s protected.