When you meet with an estate planning attorney, one of the first questions they'll ask is whether you want a simple will or a will with a testamentary trust. For many people, that's the first time they've heard the second option.
Understanding the difference — and knowing which is right for your situation — can make a significant difference to your family's financial outcomes.
A Standard Will: How It Works
A standard will is a legal document that records your instructions for distributing your assets after you die. It names your beneficiaries, specifies what each person receives, and appoints an executor to carry out those instructions.
When you die, your executor applies for probate and then distributes assets directly to beneficiaries as specified. Once distributed, the assets are the beneficiary's personal property — subject to their personal tax obligations, creditors, and family law claims.
A standard will is appropriate for many people — particularly those with straightforward estates, adult beneficiaries, and no complex tax or protection needs.
A Will With a Testamentary Trust: How It Works
A testamentary trust is a trust created by your will that comes into existence when you die. Instead of distributing assets directly to beneficiaries, your estate passes into the trust. A trustee manages and distributes those assets over time, according to the trust's terms.
The beneficiaries don't personally own the trust assets — they receive income and distributions from the trust. This distinction has significant legal and tax consequences.
Side-by-Side Comparison
Tax on income from inherited assets
Standard will: Inherited investments produce income in the beneficiary's hands, taxed at their personal marginal rate. For minor children, investment income is typically taxed at the top marginal rate (up to 47%).
Testamentary trust: Income distributed to minor beneficiaries from a testamentary trust is taxed at adult marginal rates — meaning each child can receive up to the tax-free threshold tax-free. This can save thousands of dollars per year.
Protection from relationship breakdown
Standard will: Once assets are distributed, they are the beneficiary's personal property. In a divorce, those assets may be exposed to family law property settlement claims.
Testamentary trust: Assets held in the trust are not personally owned by the beneficiary, which may provide protection from family law claims — depending on circumstances and how the trust is structured.
Protection from creditors
Standard will: Distributed assets are exposed to the beneficiary's creditors if they become bankrupt.
Testamentary trust: Trust assets may be protected from a beneficiary's personal creditors — again, depending on structure and circumstances.
Control over when beneficiaries receive assets
Standard will: Assets pass to beneficiaries at the time specified in the will — which might be immediately, or at a certain age. Once received, there's no further control.
Testamentary trust: The trustee can exercise discretion over distributions — holding back capital until a beneficiary is mature enough, or withholding distributions during a difficult period (a bad relationship, financial trouble, or illness).
Cost and complexity
Standard will: Lower cost to prepare. Simpler to administer.
Testamentary trust will: Higher cost to prepare. Requires ongoing trust administration after death (tax returns, trustee decisions). The cost is generally justified for estates above a certain size or complexity.
Which Is Right for You?
A standard will is usually sufficient if you:
- Have a modest estate with simple distribution needs
- Have adult beneficiaries who are financially stable and independent
- Have no concerns about relationship breakdown or creditors among your beneficiaries
A will with a testamentary trust is worth considering if you:
- Have minor children or grandchildren
- Have significant investment assets (property, shares, managed funds)
- Have beneficiaries at risk of relationship breakdown or bankruptcy
- Have a blended family with complex inheritance needs
- Have a beneficiary with a disability or vulnerability
- Want to leave assets in a way that generates tax-efficient income for the next generation
You Don't Have to Choose Forever
A will with a testamentary trust gives beneficiaries the option to use the trust — it doesn't require them to. In many drafting approaches, beneficiaries can choose to receive assets outright or have them held in the trust, depending on their circumstances at the time of your death.
This flexibility means that having a testamentary trust doesn't lock your beneficiaries into a complex structure if their situation doesn't warrant it.
Get the Right Advice
The decision between a standard will and a testamentary trust is not one-size-fits-all. It depends on the size and nature of your estate, your family's circumstances, and your goals.
Our estate planning team can assess your situation and recommend the approach that best protects your family and minimises their tax burden. Request a confidential consultation today.
And once your documents are prepared, store them securely in Custodium Vault — so your executor and trustee can access everything they need, when they need it. See our plans here.