It's not just a Will.
It's a plan, and a structure, for your people.
A testamentary trust can turn a simple Will into a long term family plan. Tax flexibility for the people you leave behind, and thoughtful protection built around your children's inheritance.
Most families are never told about this.
When I sit down with parents for the first time, almost nobody has heard of a testamentary trust, and it is often the single most valuable thing we discuss. I'm Jaime Stefanac, estate planning and family lawyer, founder of Family First Estate Planning, and a mother of five. From our practice in the Northern Rivers of New South Wales, I advise families across Australia, with every estate plan designed personally and every consultation conducted by private video appointment.
What even is a testamentary trust? Do we need one? Is it only for wealthy people? And how would we know?
This page gives it to you straight. What it is, what it can do for your family, and just as honestly, when you don't need one.
A testamentary trust is a trust created inside your Will that stays dormant while you're alive and only starts if you pass away. Instead of assets going directly to your spouse or children, they can be held in a flexible trust controlled by the people you choose. Income can be distributed with real tax flexibility, including to children under 18, who are generally taxed at adult rates on testamentary trust income. Under current rates, that can mean around $22,500 per child, per year, received completely tax free once the tax-free threshold and low income tax offset are taken into account. Held this way, an inheritance can also be harder for outsiders to reach if a beneficiary later separates, is sued, or faces bankruptcy.
What is a testamentary trust, exactly?
"Testamentary trust", "testamentary discretionary trust", "TT", "TDT". It's all lawyer speak for the same thing: a trust set up inside a Will that starts when the willmaker dies.
It works very much like a family trust, but it stays dormant until it's needed. While you're alive, nothing changes and you own your assets exactly as you do now. If you pass away, your estate can flow into the trust rather than being handed over in lump sums.
Trusts work by separating control of assets from benefit. The person you choose as trustee manages the assets for the people you want looked after, usually your spouse, children and grandchildren. You set the rules in your Will. Your family gets the flexibility to apply them to real life as it unfolds.
The Appointor
The ultimate controller. Can replace the trustee at any time. Often the same trusted person or people, and a key part of designing who really holds the reins.
The Trustee
Legally holds and manages the trust assets day to day, with discretion over who benefits and when. Managing for the beneficiaries, in their interests.
The Beneficiaries
The people who can receive income and capital, at the trustee's discretion. No beneficiary owns the trust assets, and that separation is where much of the protection comes from.
- A testamentary trust should save your family tax after you die, through flexible income distribution.
- It should help protect an inheritance from divorce and bankruptcy risks, when managed prudently.
- It is not just for complex situations or the super rich. Everyday families often have the ingredients through super, life insurance and home equity.
- You only get one chance to access the benefits. It must be in your Will when you die. It cannot be added afterwards.
- It is not administratively burdensome. Any extra compliance should be far outweighed by the flexibility it creates.
- It only starts working if you die. The benefits don't start until then, but neither do the compliance requirements.
The same $1 million.
Two very different outcomes.
A testamentary trust usually enters a family's life in one of two ways. Sometimes it's a parent's Will, so the inheritance you leave your adult children lands in a trust they control, ready to support their own families with the same flexibility and protection. And sometimes it's a spouse's Will, which is where it matters most, because losing a breadwinner is exactly the moment a family can least afford to lose more to tax.
That second story is Dan and Lucy's. When Dan passed away unexpectedly, his life insurance paid out $1 million. Lucy was suddenly responsible for two young children and the family's entire financial future. Invested, that money earns about $50,000 a year. Here's how the structure of Dan's Will could change what happens to that income.
Left directly to Lucy
The $50,000 is taxed entirely in Lucy's name, on top of her own income, potentially pushing her into a higher bracket. The money still goes to school fees and the mortgage, but a slice goes to the ATO first, every year.
Left via a testamentary trust
The same $50,000 could instead be distributed to the two children. Income from a testamentary trust is generally taxed to minors at adult rates rather than penalty rates, so each child could receive around $22,500 per year completely tax free under current rates, taking into account the tax-free threshold and low income tax offset. The capital stays invested and keeps working.
And the same structure works generation to generation. If Lucy's own parents had testamentary trusts in their Wills, an inheritance from them could arrive with the same flexibility and protection built in, supporting Lucy's family rather than simply landing in her name.
An illustration based on general principles and thresholds current at the time of writing. Outcomes depend entirely on your circumstances. Read the full case study →
What it's designed to protect against
- Relationship breakdown. An inheritance left directly to your child can end up in the property pool if their relationship later fails. Assets held in a prudently managed testamentary trust can be much harder for a former partner to reach. As a family lawyer as well as an estate planner, I've seen what happens to wealth when relationships break down. It's exactly why I design Wills this way.
- Bankruptcy and claims. If a beneficiary runs a business or works in a profession that attracts claims, trust assets don't sit in their personal name. That separation can offer meaningful protection, again when the trust is managed properly.
- Young or vulnerable beneficiaries. No 18-year-old receives a lump sum on their birthday. The trustee can fund education, a first home or a wedding at the right time, in the right way.
- Blended family complexity. The structure can be designed to provide for your partner during their lifetime while the capital ultimately passes to your children.
- Tax inflexibility. A direct gift lands in one person's name and is taxed there, every year, with no choices. A testamentary trust creates options each year about how income is shared across the family, within the tax rules.
Do you actually need one?
You don't need millions in the bank. Many everyday families, tradies, teachers and business owners already have the ingredients: superannuation, life insurance and home equity routinely add up to more than $1 million the day after something happens, even when the bank balance never looked like that. A testamentary trust is usually worth serious consideration if any of these sound like you:
- You have children under 18, or beneficiaries who may be minors when you pass
- You're part of a blended family or in a second marriage
- You or your children run a business, farm or professional practice
- You hold meaningful life insurance or superannuation
- You want wealth to support more than one generation
And honestly, when you might not
If your estate is modest, your beneficiaries are financially stable adults in secure relationships, and simplicity matters more to you than flexibility, a well drafted simple Will may serve you perfectly well. A testamentary trust is also not a magic shield. It has to be managed properly to do its job, and it can't fix a Will that ignores superannuation or jointly owned assets, which can pass outside your Will unless the plan deals with them deliberately. Part of our planning session is telling you plainly which structure your family actually needs. Sometimes the answer is the simpler one.
The free 5 day Testamentary Trusts mini course
Five short emails over five days that unpack everything on this page further. How the tax flexibility actually works, what "prudently managed" really means, how super and life insurance fit in, and the questions to ask before you pay any lawyer. Plain English, no jargon.
Free, unsubscribe anytime. General legal information only, not legal advice.
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Testamentary trust FAQs
How is a testamentary trust different from a family trust?
A family (discretionary) trust is set up while you're alive and starts working immediately. A testamentary trust is established by your Will and stays dormant until you pass away. One practical difference is tax for children: minors receiving income from an ordinary family trust are generally taxed at penalty rates above a small threshold, while minors receiving testamentary trust income are generally taxed at ordinary adult rates under current rules. In practical terms, that can mean around $22,500 per child, per year, received tax free once the tax-free threshold and low income tax offset are taken into account. It is one of the few concessions of its kind in Australian tax law.
Who should I appoint as trustee?
Often your surviving spouse, one or more adult children, or another trusted person, sometimes with the primary beneficiary able to take control of their own trust once they're old enough. The trustee controls investments and distributions, so this is one of the most important decisions in the whole plan, and one we work through carefully together.
Can my spouse still access the money day to day?
Yes, that's the design. A testamentary trust is not a lock box. If your spouse is the trustee and a beneficiary, they can apply trust income and capital to the family's needs, school fees, the mortgage, everyday life. The difference is the structure around them, which is built to add flexibility and protection if life takes an unexpected turn.
Does my superannuation automatically go into the trust?
No, and this catches many families out. Super sits outside your Will unless it's directed to your estate with a valid death benefit nomination. If you want super or life insurance to be able to flow into the testamentary trust, and it's often the largest asset that can, the nomination and the Will need to be designed together. We look at both in every trusts plan.
Can I add a testamentary trust to my existing Will?
Not as a bolt-on. The trust has to be drafted into the Will itself, so it means a new Will. If you have an existing Will, we review what's there, keep what serves you, and rebuild the structure around the trust.
How long can the trust last?
In most states and territories, up to around 80 years. It doesn't have to run that long. If the structure has done its job, the trustee can generally bring it to an end and distribute the assets.
Is it expensive to run after I'm gone?
A testamentary trust that's never needed costs nothing, because it only activates if your executors and family choose to use it. Once running, it needs an annual tax return and sensible record keeping, much like a family trust. For many families the flexibility is well worth the modest running costs, and if your circumstances suggest it wouldn't be, we'll tell you that before you pay us to draft one.
How much does a testamentary trust Will cost?
All of our estate plans are fixed fees agreed upfront, never hourly billing. Because the right package depends on your family and your structures, we set out every fee and inclusion in our Fees and Packages Guide. Get the guide here, or bring your questions to a free 15 minute Legal Clarity Call.
Jaime Stefanac, Legal Director & Founder
Estate planning and family lawyer, admitted in 2014. Jaime has spent her entire career across estate planning and family law, so every trust she designs is informed by what actually happens to family wealth when relationships break down. She practises from the Northern Rivers of New South Wales, where she lives with her husband and their five children, and advises families across Australia by private video appointment. Meet Jaime →
Last reviewed: 2 September 2026 · Family First Estate Planning
This page provides general legal information only. It is not legal advice, it is not tailored to your circumstances, and reading it does not create a solicitor and client relationship with Family First Estate Planning Pty Ltd. Estate planning laws, including tax rules, trust law and family provision legislation, differ across Australian states and territories and change over time. You should obtain legal advice specific to your circumstances before making decisions about your Will or a testamentary trust. Figures and thresholds reflect the rules current at the date shown above.