How many testamentary trusts do I need in my will?
The key benefits of a will with testamentary trusts, and its difference from an essential will offering direct gifts, is that it offers beneficiaries of the will who have reached a certain age the opportunity to choose whether to take their benefits directly and absolutely on the death of the testator, or to have those benefits held in trust for them. A will with testamentary trusts offers asset protection and tax effectiveness.
There is no limit to the number of testamentary trusts a Will can establish. However, it may be preferable to use a single testamentary trust if:
the testators are young and their children are under 18. It may then not be appropriate to have more than one testamentary trust as the surviving spouse will be in control of the trust for a long period;
you require greater protection for the assets eg to deal with the bankruptcy or relationship breakdown of an individual beneficiary;
the testator sees the beneficiaries as custodians of wealth as opposed to direct recipients;
the assets are not suitable to be transferred to a structure other than to a single testamentary trust – eg business interests or a large property holding;
on-going costs are an issue – as one testamentary trust for all beneficiaries will have less ongoing costs than multiple trusts; and
the income generated by the estate will be insufficient to warrant multiple testamentary trusts.
Multiple testamentary trusts are preferable when:
beneficiaries live in different geographical locations eg one or more children living overseas;
siblings and their respective spouses do not get along and controlling wealth jointly may further fragment family dynamics;
there are concerns that certain beneficiaries may not agree with the administration of one trust;
the investment risk profiles of each beneficiary are different;
the testator wants to give control of a specific asset to one beneficiary;
one beneficiary has young children and another beneficiary has adult children, in which case their investment objectives may be different;
the testator wants to give full control to one beneficiary of their own testamentary trust but to give either partial control (eg with one or more co-trustees) or no control at all to another beneficiary; and
the trusts are optional and there is more than one primary beneficiary. A single testamentary trust with more than one primary beneficiary cannot be optional and multiple testamentary trusts would be required in that case.