How to Set Up a Testamentary Trust

Firstly the downside – unfortunately someone has to die to set up a testamentary trust!

A testamentary trust is just a trust set up under a person’s will. It could be a unit trust, fixed trust, hybrid trust, bare trust or a discretionary trust.

The trust is set up as part of the will. The testator will instruct their executor to pass specified property to the trustee of the trust with the trustee nominated and the terms of the trust outlined in the will.

All of your property could be left to the trust or just specific property with other property going directly to people. Property here means not just houses, but any asset.

Example:

I give any vehicle that I own at my death to my children.

I leave the remainder of my estate to the trustee of the ABC trust to be held on the terms outlined in part B below.

The terms of the trust would run many pages and would outline who the appointor is, who the trustee is, who the primary beneficiaries are and who the other beneficiaries are. The powers of the trustee will be outlined and they can be broad or restrictive. The trustee could be restricted to invest only in certain areas and prohibited to invest in other areas – such options trading.

The first trustee of the trust would generally be the primary beneficiary. But the trust would be drafted so that the primary beneficiary should have the power to change the trustee to a company. This saves having to set up a company now and incur ASIC fees.

Since the trust is set up under the will, if the will is invalid for whatever reason, not properly witnessed for example, then the trust will not eventuate. Therefore it is of critical importance you set one up correctly.

Written by Terry Waugh, solicitor at www.structuringlawyers.com.au