It is important to regularly update your will as your personal and family circumstances change over the years. For example, when you get married, have children, buy or build a house or take out life insurance. If you don’t update your will, one risk which you may face is that after death, your property may not be distributed in a way which you ultimately wish for it to be distributed.
It is generally recognised that those persons ‘in the know’ have been using the trust concept to accumulate and secure wealth for their future generations for centuries.
What a lot of people don’t or may not know is that in making their will there are a number of options open to them none the least of which is to give a thought to incorporating a testamentary trust in the will.
What is a trust?
To start with it is good to have an understanding of what is a ‘trust’. A ‘trust’ in and of itself is not a legal identity but rather is a relationship, arrangement or understanding the nature and concept of which is recognised at law.
In brief, a ‘trust’ is an arrangement by which one person (usually titled the settlor) settles property upon another person (the trustee) for the benefit of third persons (the beneficiaries).
That initial settlement of property is usually a nominal sum of money, say $10.00 (the trust fund or trust assets), and is simply to establish the legal framework of the arrangement. The trust fund or trust assets may be added to, supplemented or varied from time to time by decisions made by the trustee for the benefit of the beneficiaries.
The ‘legal’ owner of the trust fund or trust assets is the trustee but the trustee holds that property in trust for the benefit of the beneficiaries. Most commonly the trust relationship allows the trustee the absolute discretion as to whom, when and to what extent the beneficiaries (or any of them) are to benefit from the trust fund. Therein lies the ‘discretionary’ nature of the trust arrangement.
One of the most common forms of discretionary trusts is what is commonly known as a ‘family trust’.
What is a testamentary trust?
A testamentary trust is a trust which a person makes in their will and which only comes into being or creation upon the death of the will maker. The reasons why a person may want to create a testamentary trust to deal with their property upon their death are many and varied. They include, but are not limited to:
- preservation of property for future generations;
- asset protection for potential beneficiaries;
- taxation advantages;
- some limited application to the protection of assets in the event of beneficiary matrimonial breakdown; and
- to provide for the care, welfare and advancement of particular minor beneficiaries or beneficiaries who may have special needs.
Because the testamentary trust only comes into effect upon the death of the will maker, up until that time the will maker remains the owner of the property and is free to deal with that property as and how they desire.
A will incorporating a testamentary trust is generally more involved than a basic will, but a person considering the setting up of a testamentary trust should meet with their lawyer, discuss their personal position and what they might want to achieve in their estate planning and make a decision about whether a testamentary trust will is right for them now or may be so in the future.
Persons in ‘blended family’ situations might also want to consider whether or not a testamentary trust will might be suitable for them in an attempt to avoid what could potentially be competing family provision claims by their respective children after their death.
If you would like to update your will or have any questions about your estate planning, please contact a member of our estate planning team on (08) 9228 2881 or email reception@equitaslawyers.com.au.
