One of the most important things you can do for your family is plan for the future. When creating their estate plan, many people choose to use a testamentary trust because it offers flexibility and asset protection. Unfortunately, mistakes made in the drafting process can reduce the benefits a testamentary trust is expected to deliver.
If you need assistance in structuring your trust to ensure your wishes are carried out, a NSW estate lawyer who has experience dealing with testamentary trusts can help.
What Is A Testamentary Trust?
A testamentary trust is a trust created in a will that takes effect upon the death of the will-maker. Rather, in this case, the assets are held within the trust and administered according to the terms of the will, instead of passing directly to the beneficiaries as their inheritance.
Testamentary trusts are widely used to allow for greater control of the management and distribution of property. There are also potential benefits for families with young children, vulnerable beneficiaries, blended families, or where there are significant assets.
Why Do People Make Mistakes With Testamentary Trusts?
Many people hear about the possible benefits of testamentary trusts and think that putting one into a will is enough. The effectiveness of a testamentary trust is really a lot about how it’s drafted and if it fits the family circumstances.
There is no one-size-fits-all way to go about estate planning. The ideal trust for one family may not be a good fit for another. Ignoring individual needs and future risks can lead to unintended consequences.
What Happens If The Trust Terms Are Too Restrictive?
One of the more common mistakes is making the terms of trust too strict. Trustees naturally want to control the use of assets, but too many restrictive clauses can make life difficult for trustees in adapting to changing circumstances.
For instance, the financial needs of the beneficiary may change over time, or new family situations may arise that were not foreseen at the time the will was prepared. If the language of the trust is too restrictive, the trustee may have restricted discretion in dealing with those events.
A well-drafted testamentary trust is one which gives the trustees sufficient flexibility to exercise their judgement and discretion to make sensible decisions, while at the same time protecting the interests of the beneficiaries.
Why Is Choosing The Wrong Trustee A Problem?
The trustee plays an important role in the administration of the trust and in making decisions on behalf of the beneficiaries. If you pick the wrong person, you could be in for a lot of trouble after you die.
Some people name a trustee without considering if that person has the time, skills, or willingness to properly manage the trust. Some select someone whose interests may conflict with those of beneficiaries, raising the potential for disputes.
The individual’s judgment, reliability, and ability to deal with financial and administrative responsibilities should be carefully considered when appointing a trustee.
Can Failing To Update A Will Create Problems?
You bet. Estate plans should be reviewed from time to time, especially after major life events such as divorce, marriage, the birth of children, the death of a beneficiary, or major changes in financial circumstances.
What was ideal for you in the form of a testamentary trust years ago might not be what you or your family need now. Old rules can cause confusion and increase the chance of disputes between beneficiaries.
Regular reviews help to make sure that the trust is working effectively and still doing what it is meant to do.
Why Is Poor Asset Planning A Common Mistake?
A testamentary trust can only deal with assets that are part of the estate. Many people think that all of their assets will automatically flow into the trust, but that isn’t always the case.
You may have some assets jointly with another person, in a company’s name, or otherwise arranged differently. If these issues are not addressed in the planning process, assets may pass outside the testamentary trust altogether.
A NSW estate lawyer can help to clarify the ownership of assets and whether additional planning steps are required to complement the overall estate plan.
When Should You Seek Legal Advice?
If you are thinking about setting up a testamentary trust or reviewing your current estate plan, an experienced NSW estate lawyer at JS Law Group can assist you in navigating the process and ensure your estate plan is customised to meet your requirements. To discuss your estate planning objectives and discover how a testamentary trust can safeguard your family and assets for the future, fill out the contact form on our website or call on 02 9135 2939.
