What is a testamentary trust?
A testamentary trust is a trust created by your will that comes into existence when you die. Instead of leaving assets directly to beneficiaries, you leave them to a trust managed by a trustee for those beneficiaries. It’s used to protect assets, control how and when wealth passes to the next generation, and access tax advantages that a direct inheritance can’t.
By Justin Porrins, CFP® · SMSF Specialist Adviser™ · Last reviewed 25 June 2026
Why people use one
- Asset protection — shielding an inheritance from relationship breakdown or creditors
- Control over how and when beneficiaries receive wealth
- Provision for minor or vulnerable beneficiaries
- Flexibility in how trust income is distributed and taxed
The tax advantage for children
Income distributed to a minor from a testamentary trust is treated as “excepted trust income”, taxed at normal adult marginal rates rather than the penalty rates that usually apply to minors’ income. In practice that means each child can receive income up to the ordinary tax-free threshold — a meaningful difference for a family.
Common questions
When is a testamentary trust created?
On death, under the terms of your will. Until then it doesn’t exist — the will simply sets out that the assets are to pass into the trust rather than directly to the beneficiaries.
Who controls a testamentary trust?
The trustee named in the will, who manages the assets for the beneficiaries according to the will’s terms. The same person can often be both a trustee and a beneficiary, depending on how the will is drafted.
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