What Is a Testamentary Trust and Do You Need One in Your Will?

Most wills do one thing: they hand your assets to the people you name. Simple, and for many families that is exactly right. But a straightforward gift also means your money lands in someone else's personal bank account, where it becomes fair game for a future divorce, a business failure, a bankruptcy trustee, or the tax office. A testamentary trust is the alternative. Instead of giving the inheritance outright, your will creates a trust on your death and your beneficiaries benefit from the assets without ever personally owning them.

That distinction sounds technical. In practice it can be worth tens of thousands of dollars a year to a family with young children, and it can be the difference between an inheritance staying in your bloodline or walking out the door with an ex-partner. It also adds cost and administration that not every estate needs.

Here is how they work in Queensland, what the tax concessions are actually worth, and how to tell whether your will needs one.

What Is a Testamentary Trust?

A testamentary trust is a trust created by your will. It does not exist while you are alive. It springs into being when you die and your estate is administered, which is what separates it from a family trust set up during your lifetime.

The most common form is a testamentary discretionary trust. Rather than leaving $500,000 to your daughter, your will leaves it to a trust of which your daughter is the primary beneficiary. She controls it. She can draw on it. But she does not own it, and that single fact is what drives every benefit that follows.

Who's involved

• The trustee: the person or company that holds and manages the assets and decides who receives income and capital each year. Usually the primary beneficiary, sometimes jointly with a sibling or an independent party.
• The beneficiaries: a defined class of people who can benefit. Typically the primary beneficiary plus their spouse, children, grandchildren, and often related companies or trusts.
• The appointor: the person with power to remove and replace the trustee. This is the real control lever, and who holds it matters a great deal.

Your will can create one trust for the whole estate or a separate trust for each child. Separate trusts are usually cleaner, keeping each child's tax position and risk profile apart.

How a Testamentary Trust Is Taxed

This is where testamentary trusts earn their keep, and it is the part most online explainers skip.

Normally, if a child under 18 receives investment income, the tax system hits it hard to stop parents parking assets in their kids' names. The ATO's penalty rates for minors are blunt: the first $416 is tax free, income between $417 and $1,307 is taxed at 66% of the excess, and once the income passes $1,307 the entire amount is taxed at 45%.

Income from a testamentary trust is treated completely differently. The ATO classes it as excepted income, which expressly includes "income from a deceased person's estate, including income derived by a testamentary trust from property of the deceased person's estate." Excepted income is taxed at ordinary adult rates. That means each child gets the full tax-free threshold.

What that looks like in dollars

Say a trust holds estate investments earning $60,000 a year, and the trustee distributes $20,000 to each of three grandchildren under 18 who have no other income. Under the 2026–27 resident tax rates, the first $18,200 is tax free and the remaining $1,800 is taxed at 15%, which comes to $270. The low income tax offset then wipes that out. Tax payable is nil, for each of the three children.

Earn that same $60,000 on money simply gifted to those children outside a will and the penalty rates apply instead: 45% of the full $20,000 each, or $27,000 across the three. That is a $27,000 swing in a single year, and it repeats every year the trust runs.

Because the offset stacks on top of the threshold, a child can receive roughly $22,800 of excepted trust income in 2026–27 before paying any income tax. Spread across several children or grandchildren, that is a significant amount of family income moving tax free. (Figures exclude the Medicare levy and assume no other income.)

Against a standard will the advantage is different but just as real. Under an outright gift the capital lands in one adult's name and all future income is taxed at that person's marginal rate, which for a working professional can be 45% plus the levy. A testamentary trust lets the trustee choose each year who receives the income, using thresholds that would otherwise go to waste.

The 2019 change that catches people out

Before 1 July 2019, some advisers pushed unrelated assets into a testamentary trust to run more income through the concession. That is now closed off. The concession applies only to income from property that came out of the deceased estate, or accumulations of it. Assets transferred to the trustee on or after 1 July 2019 with no connection to the estate do not qualify, so get advice before topping up a trust with outside money.

Asset Protection: What a Testamentary Trust Can and Can't Do

The second reason people use these structures is protection, which needs honest framing.

Relationship breakdown. An inheritance received outright is generally part of the pool available for division if a marriage or de facto relationship ends. Assets held in a properly structured trust have a better chance of staying out of it. In Bernard & Bernard [2019] FamCA 421 the Family Court declined to include the husband's testamentary trust interest, worth roughly $1.9 million, in the property pool. He was only a discretionary beneficiary: his sister was the trustee, and he had no power to appoint or remove her. The structure was what saved it. The court did still treat the interest as a financial resource, which it can weigh when adjusting the final split, so the protection is real but not absolute.

Creditors and bankruptcy. If a beneficiary runs a business, guarantees a lease, or works in a high-liability profession, assets they do not personally own are much harder for a creditor or bankruptcy trustee to reach.

Vulnerable beneficiaries. A trust lets you provide for a child with a disability, an addiction or a controlling partner without handing over a lump sum they cannot safely manage.

The limits. A testamentary trust is not a force field. Family courts retain broad powers, and where a beneficiary effectively controls the trust a court may treat the assets as theirs in substance. Nor does a trust stop someone contesting your will. Eligible people can still bring a family provision claim against your estate under the Succession Act 1981 (Qld), and if that claim succeeds the trust may never be funded as you intended. Protecting against that is a separate part of estate planning, and it is worth understanding the grounds for estate disputes before you finalise anything.

Do You Need a Testamentary Trust in Your Will?

The structure has to earn its cost. A trust means annual tax returns, financial records and accounting fees for as long as it runs. On a modest estate that overhead can swallow the benefit.

Usually worth considering if

• Your estate is substantial enough to generate real investment income after it is distributed, rather than being spent or paid straight into a mortgage.
• You have young children or grandchildren, so the minors' tax concession has something to work with.
• A beneficiary is in business, holds professional liability, or has given personal guarantees.
• A beneficiary's relationship is unstable, or you want the inheritance to stay with your bloodline.
• You have a blended family and need to provide for a current partner while preserving capital for children from an earlier relationship.
• A beneficiary cannot manage money safely, or receives means-tested support.

Probably not worth it if

• Your estate is mostly the family home and superannuation, and it will be sold and split.
• Your beneficiaries are financially settled adults who will use the inheritance to clear debt.
• Nobody in the family has a meaningful asset-protection concern.
• No beneficiary is willing to take on trustee duties and the ongoing compliance.

A middle path is worth knowing about. Your will can give beneficiaries the option of a trust rather than forcing one, so each person decides after your death whether the structure suits their circumstances at the time. It costs nothing extra to include and keeps the door open.

What's Changed in Queensland

Two reforms have shifted the landscape, and any will drafted before them is worth a review.

First, the maximum life of a Queensland trust has been extended from 80 years to 125 years, effective 1 August 2025 under the Property Law Act 2023 (Qld). A testamentary trust in a new will can now run for well over a century, covering several generations rather than stopping partway through your grandchildren's lives.

Second, the Trusts Act 2025 (Qld) commenced on 28 April 2026, replacing the Trusts Act 1973. Trustees now hold the powers of an absolute owner over trust property, their core duties are written into the legislation for the first time, and beneficiaries have a legislated right to inspect trust accounts. Children, insolvent people and disqualified persons can no longer act as trustees, which matters if your existing will names someone who no longer qualifies.

Frequently Asked Questions

How much does a testamentary trust cost?

Including trust provisions in a will costs more than a simple will, because the drafting is more involved. The larger cost is ongoing: once the trust is running it needs its own tax return and financial records each year, so budget for annual accounting fees. Those costs only start after your death, and only if the trust is actually used.

Who controls a testamentary trust after I die?

Whoever you appoint as trustee, guided by the terms you set in your will. Many people appoint the primary beneficiary as trustee so they have practical control, sometimes alongside a sibling or independent trustee where asset protection is the main goal. The appointor holds the power to change the trustee, so think carefully about who that is.

Is a testamentary trust the same as a family trust?

No. A family trust is set up while you are alive and holds assets during your lifetime. A testamentary trust is created by your will and only comes into existence on your death. The tax concession for minors applies to testamentary trusts, not family trusts, which is one of the main reasons the two are not interchangeable.

Can a testamentary trust be challenged or contested?

The trust itself is hard to attack, but the will that creates it can be challenged, and an eligible person can bring a family provision claim against your estate. If the claim succeeds, assets may be redirected before the trust is ever funded. Clear drafting and documented reasons for your decisions are the best defence.

Getting Your Will Right

A testamentary trust is a tool, not a default. Used on the right estate it shelters income from penalty tax rates, keeps capital out of reach of creditors and former partners, and can support your family for generations. Used on the wrong estate it is paperwork and accounting fees for a benefit nobody needed.

The answer depends on what you own, who your beneficiaries are and what risks they carry. OMB Solicitors has advised Gold Coast families on estate planning since 1968, and our Wills and Estates team will tell you plainly whether a trust is worth it in your case or whether a well-drafted simple will does the job.

Learn more about how our testamentary trust lawyers structure these arrangements, review the options for preparing or updating your will, or contact our Southport office to arrange an appointment.

This article is general information only and is not legal or tax advice. Tax rates and thresholds change, and how they apply depends on your circumstances. Please seek advice specific to your situation before acting.