If you think a Will is enough to protect your estate, think again. Here’s what most people don’t find out until it’s too late and how a Testamentary Trust protects your assets.
A standard Will is far better than having no Will at all. But for many NSW families, a Will on its own simply isn’t enough to protect the wealth they’ve worked a lifetime to build.
A Testamentary Trust is a trust created within your Will that only comes into effect after you pass away.
While your Will still needs to go through the NSW probate process first — where the Supreme Court confirms its validity and grants your executor authority to act — the trust then takes effect and offers a layer of legal and financial protection that a plain Will cannot provide.
Here are six real pitfalls a testamentary trust can help your family avoid.
1. The ‘Minors Tax’ Trap
With just a Will:
If your estate distributes income directly to children under 18, the ATO taxes that income at penalty rates — up to 66% on amounts over $416. This catches many families completely off guard.
With a testamentary trust:
Minor beneficiaries are taxed at normal adult marginal rates, potentially saving your family thousands of dollars every single year until your children reach adulthood.
2. A Beneficiary’s Divorce or Relationship Breakdown
With just a Will:
An inheritance paid directly to a child becomes part of their personal assets. If they later go through a divorce, that inheritance can be treated as part of the matrimonial asset pool and claimed by their former spouse in Family Court proceedings.
With a testamentary trust:
The inheritance sits inside a trust structure, making it far harder for a former spouse to access. The assets you leave behind stay with the people you intended.
3. A Beneficiary’s Creditors or Bankruptcy
With just a Will:
If your child is in financial difficulty or becomes bankrupt, an inheritance paid directly to them can be seized by their creditors — regardless of your intentions.
With a testamentary trust:
Assets held in trust are generally protected from a beneficiary’s creditors, preserving the wealth you worked hard to build for the people you love.
4. A Vulnerable or Financially Inexperienced Beneficiary
With just a Will:
A lump sum inheritance goes directly to the beneficiary with no controls — regardless of whether they are equipped to manage it responsibly. This is a real concern for beneficiaries who are young, who struggle with addiction, or who face mental health challenges.
With a testamentary trust:
A trustee manages distributions, controlling how much is paid and when. This protects the beneficiary from making poor financial decisions and helps ensure the inheritance provides lasting support rather than being exhausted quickly.
5. Family Provision Claims Against Your Estate
With just a Will:
Eligible persons — including estranged children, former spouses, or dependants — can make a Family Provision Claim under the Succession Act 2006 (NSW), seeking a larger share of your estate. A straightforward Will offers limited structural defence against such claims.
With a testamentary trust:
While a testamentary trust does not eliminate the risk of a claim entirely, a well-structured trust can make it harder for claimants to access certain assets and gives your solicitor more tools to defend the estate’s structure.
6. Blended Family Complications
With just a Will:
In blended families, assets left to a surviving spouse could ultimately pass to their children from another relationship — rather than your own biological children — even if that was never your intention.
With a testamentary trust:
You can structure distributions so your children are protected as ultimate beneficiaries, regardless of what happens in your surviving spouse’s life after you pass.
Is a Testamentary Trust Right for You?
A testamentary trust is not automatically the right solution for everyone. It does add complexity and ongoing administration costs compared to a standard Will. However, for families with:
- Minor or young adult children
- Significant assets to protect
- Blended family arrangements
- Beneficiaries with financial vulnerabilities
- Concern about potential family provision claims
…the benefits can far outweigh the additional costs.
Speak With a NSW Estate Planning Solicitor Today
At Sheridan Legal, we help NSW families put the right estate planning structures in place before it’s too late.
Our team can advise you on whether a testamentary trust is appropriate for your situation, and ensure your Will is structured to protect the people you love.
📞 Call us on (02) 6562 3300 or visit our website to book an appointment.
Haven’t yet created your Will? Read our article How To Write A Will – 7 Steps To Protect Your Kids, Your Home and Your Future
This article is general information only and does not constitute legal advice. Please contact a qualified NSW solicitor for advice specific to your circumstances.