What is a testamentary trust?

A testamentary trust is a discretionary estate planning tool established by a will that takes effect after the testator’s death. Its primary purpose is to hold and manage some or all of the deceased’s assets and distribute them to beneficiaries according to the instructions laid out in the will.

Upon the death of the testator, their assets are transferred to a nominated trustee, who manages them on behalf of the beneficiaries. These beneficiaries may receive income, capital, or both, depending on the terms set out in the trust deed.

Most testamentary trusts are discretionary, meaning the trustee has the flexibility to decide how and when to distribute income or capital to beneficiaries or other related individuals. However, the trustee is legally obligated to act in the best interests of the beneficiaries and adhere to the instructions in the trust deed.

This type of trust can remain active for a specific timeframe or until the death of the last beneficiary.