Estate planning for younger children may seem at odds with our usual thinking. We contemplate the affairs of the testator in formulating an estate plan. Any special needs of child beneficiaries also need to contemplated.
Using a Testamentary Trust to split estate income with young Children
An Estate Planning strategy that has grown in popularity in recent times is the use of a testamentary trust(s). This vehicle is effective where young children (even grandchildren) are beneficiaries of the estate.
Testamentary trusts add flexibility to an estate’s administrative outcomes. Whilst it adds a level of cost and complexity to the process, we caution to beware this strategy if purely on taxation grounds. Taxation benefits are a potential benefit of using such a trust, but the capital available to the trustee should be of sufficient quantum to warrant the effort and expense.
Who can benefit from a testamentary trust?
Situations where a testamentary trust could prove beneficial include –
- Families with young children
- Financially vulnerable families (on the loss of a parent/ carer)
- High net worth estates where minimising tax is important.
How does a testamentary trust work?
The testator’s Will establishes any testamentary trusts. They come into effect as a consequence of their death. Flexibility; and protection features and benefits of testamentary trusts are detailed in previous posts on our website. We repeat them here –
- Rather than all the deceased’s assets being distributed by their legal personal representative (the executor of their estate) upon death, some or all of the assets are held in trust for the benefit of a specific group of beneficiaries named in the Will (more than one testamentary trust can be established under a Will);
- As current taxation laws stand 1 –
- trust income distributed to children of any age,
- is taxed at standard rates, when
- as beneficiaries of a testamentary trust,
- rather than the penalty rates that normally apply to minors’ unearned income;
The trustee can have full discretion as to who receives trust income and capital. Their authority can be restricted 2 under trust provisions.
We recommend seeking professional advice before relying on this aspect when considering your estate plan. Testamentary trust ‘rules’ need careful consideration. A Court challenge may overturn inequitable rules.
Where can I get help with Estate Planning?
The Continuum Financial Planners Pty Ltd Estate Planning service offers clients:
- working with them to prepare the detailed information required for their appointed estate planning specialist lawyer; who can then
- consider the client’s individual detail in light of their estate planning experience so as to design a plan appropriate to the client’s present and known likely circumstances; and where needed
- provision of access to our referral connections of such professionals (to whom we are happy to refer you to match their expertise with circumstances such as your own).
The experienced advisors at Continuum Financial Planners Pty Ltd are available to –
- guide you through the preparation of the information to refer to a legal adviser (estate planning specialist), and, where necessary,
- a taxation specialist,
so as to ensure that all relevant detail is provided.
Contact Continuum Financial Planners to get started on your estate plan. To make an appointment with one of our experienced advisers –
- phone our office on 07-34213456, or
- at your convenience, use the linked Book A Meeting facility.
More about Estate Planning…
This is the twelfth in a series of 13 articles on the topic of Estate Planning: further articles in the series seek to bring clarity to some of the issues and implications to be dealt with in fulfilling the three key considerations of Estate Planning – getting the right amount of money, to the right beneficiaries and at the right time; and to prepare you and your family to understand the final plan when drafted. The remaining articles consider –
- Estate Planning outlined;
- Estate planning and flexibility in the modern Will;
- Asset protection using Estate Planning;
- Superannuation death benefit nominations and Estate Planning;
- Estate planning and Business Succession planning;
- Capital Gains Tax impact on estate planning;
- Estate planning and family loans;
- Estate planning and company-owned assets;
- Estate planning for a SMSF trustee;
- Estate planning and superannuation assets;
- Estate planning with a testamentary trust;
- Estate planning dependent on a valid Will.
(This article was originally posted by us in January 2012. We occasionally refresh/ update it, most recently in August 2025.)