Making a Will is one of the most important steps you can take to protect your family and provide clarity about your wishes. But not all Wills are the same. The right structure depends on your personal circumstances, your family situation, and the nature of your assets.
Broadly speaking, Wills fall into three categories: simple Wills, complex Wills, and testamentary trust Wills. Understanding the differences can help you make an informed decision about which structure best suits your needs.
Simple Wills
A simple Will is the most straightforward type of Will and suits people with uncomplicated family and financial circumstances.
For example, you might be a married couple with a nuclear family whose assets are mainly made up of the family home and superannuation. A simple Will might leave all of your assets to each other, appoint each other as executors, and then, on the death of the surviving spouse, divide your assets equally amongst your children.
This is a fairly common, straightforward structure that works well when your wishes are clear and your circumstances are unlikely to give rise to disputes or complications.
Complex Wills
A complex Will takes into account circumstances that are somewhat out of the ordinary. It is a tailored document designed to address specific family dynamics, relationships, or personal priorities.
Some common scenarios where a complex Will might be more appropriate include:
- Blended families. You might be in a second marriage where you and your partner each have children from previous relationships. You may not have combined your assets, and on your deaths it is a priority for each of you to provide something to your respective children rather than leaving everything to each other. A complex Will might grant each spouse a right of occupation of the family home, while directing that assets held in sole names pass to each person’s own children.
- Providing for a beneficiary with a disability. Additional care is needed to ensure that their inheritance supports their long-term wellbeing.
- Estrangement. If you are navigating difficult family relationships, a complex Will can help document your intentions clearly and reduce the risk of future disputes.
A complex Will gives you the flexibility to address unique family situations in a way that a standard template cannot.
Testamentary Trust Wills
The third and most sophisticated type of Will is a testamentary trust Will. These Wills are often suitable for people with significant assets, complicated circumstances, or both.
How a Testamentary Trust Works
In a testamentary trust structure, your assets do not pass directly to your beneficiaries when you die. Instead, they are transferred into a trust and managed by a trustee for the benefit of the beneficiaries.
For example, imagine you own five properties, have a million dollars in the bank, and hold a significant share portfolio that generates substantial dividends. You have three children who you want to benefit from your assets, but you do not necessarily want them to receive their inheritance directly and immediately upon your death.
You can appoint a person or people as trustee of your testamentary trust. When you die, rather than the properties, cash, and shares being transferred to your three children, they are transferred to the trustees. Your Will then sets out the rules that the trustees must follow in managing the assets.
The rules of the trust might include:
- Setting aside a certain amount of money each year for education
- Allowing the trustees to use trust assets or income to fund the purchase of real estate for beneficiaries
- Directing that each beneficiary be paid a minimum sum of cash each year for living expenses
- Permitting the trustees to use assets or income of the trust to pay for holidays and travel for beneficiaries
The Main Benefits of a Testamentary Trust
There are two key benefits that make testamentary trusts attractive for people with significant or complex assets.
- Asset protection. Because the assets of your estate do not pass directly to the beneficiaries but are held on trust by the trustees, they are protected against risks such as an individual beneficiary going bankrupt or squandering their inheritance through poor financial management. There is also some protection in the context of relationship breakdowns. Assets held in a testamentary trust will ordinarily not form part of the matrimonial pool of assets if one of your beneficiaries goes through a marriage breakdown.
- Potential tax minimisation. Much like an ordinary discretionary trust, a testamentary trust provides flexibility. The trustees can ordinarily determine how and to whom to distribute income. For example, the trustees may be able to distribute income to certain beneficiaries in favour of others if the tax outcome will be more advantageous. Capital gains, such as those arising from real property assets held in the trust, can also be distributed more flexibly, and there is an ability to distribute to minor beneficiaries without the usual penalty tax rates that apply outside a testamentary trust.
Please note that we do not and cannot provide tax advice, and the above is a basic snapshot of one of the perceived advantages of a testamentary trust. You should speak with a qualified tax adviser about your specific circumstances.
Which Type of Will Is Right for You?
Choosing the right structure depends on your family, your assets, and your priorities. A simple Will might be perfectly suited to your needs, or your circumstances might call for a more tailored complex Will or a testamentary trust structure.
The most important thing is to make sure your Will reflects your wishes clearly, is legally valid, and gives your loved ones the certainty they need.
Get in Touch
If you are thinking about making or updating your Will, our team can talk you through your options in plain English and help you work out which structure best suits your situation. Contact our experienced team to discuss your circumstances and start planning with confidence.
