A “Testamentary Trust”, “Testamentary Discretionary Trust”, “TT” and “TDT” are all terms used to describe a trust contained in a Will which is established on the death of a will maker.
A testamentary trust is similar to a family trust (discretionary trust), where a trustee holds and manages assets on behalf of the beneficiaries. The following diagram provides a summary of the various roles within a testamentary trust:
The definition of “Beneficiaries” may specifically name people and classes of people, such as “my children” and “my grandchildren” (who may not be born at the time your will is made).
It is possible for a person to hold several roles within a testamentary trust. For example, your adult child could be a trustee and beneficiary. An adult child who is a trustee may exercise their discretion to take advantage of tax savings and distribute sums to minor grandchildren.
It is the discretionary nature of the testamentary trust that provides a powerful tool for asset protection. In other words, if a beneficiary is not a trustee, they do not have a “choice” as to the distributions they receive. This can be beneficial where a beneficiary is facing a relationship breakdown, bankruptcy, or has a history of mismanaging money.
If you are considering whether a Will incorporating a testamentary trust may be beneficial to your circumstances, please contact The Small Business Lawyer to arrange a consultation. Meetings may be held in person or via Zoom.