Sep 11, 2025 Joel Hernandez
Testamentary Trusts: A Smart Strategy for Protecting Your Legacy
A testamentary trust is a powerful estate planning tool that’s gaining popularity among families who want to safeguard their wealth and support vulnerable loved ones. Unlike a traditional trust created during your lifetime, a testamentary trust only comes into effect after your death — and only if you’ve included the right provisions in your will.
What Is a Testamentary Trust?
Upon your passing, your beneficiaries may have the option (if permitted by your will) to receive their inheritance through a testamentary trust rather than directly. Instead of assets being handed over outright, they’re held and managed by a trustee — someone you nominate to oversee the trust. This trustee can then distribute income or assets in a way that suits each beneficiary’s unique needs and circumstances.
Key Benefits
Asset Protection
Testamentary trusts offer a layer of protection against external threats such as:
- Legal claims or disputes
- Creditors
- Relationship breakdowns (e.g. divorce or separation)
This structure helps ensure your beneficiaries retain control and benefit from your legacy, even in challenging situations.
Support for Vulnerable Beneficiaries
For beneficiaries who are:
- Young or financially inexperienced
- Living with disabilities
- At risk of mismanaging a lump-sum inheritance
A testamentary trust provides ongoing financial support while preserving wealth across generations.
Tax Efficiency
One of the standout advantages is the ability to distribute income to minor beneficiaries and have it taxed at adult rates — a benefit not available with standard family trusts. This can result in significant annual tax savings for families.
How to Set One Up
To establish a testamentary trust, you’ll need to include specific instructions in your will. Your financial advisor can help assess whether it’s the right fit for your situation, and your lawyer can draft or update your will to ensure the trust is properly structured.
