In this guide(13 sections)
If you're making or updating a will, someone may have mentioned a "testamentary trust" and you're not sure whether it's a clever idea or just a complicated one. Often the question behind it is a loving one: how do I make sure what I leave actually helps my children, rather than being lost to a poor decision, a divorce or a creditor? The good news: a testamentary trust is simply a way of leaving your estate with a safety net around it, and for many families a simple will is still all that's needed. Below is how it works in plain English. You don't have to work it out alone — fill in the enquiry form and Elisa will call you back. The first 30 minutes are free.
This guide is general information, not legal advice for your situation. Trusts and tax interact in technical ways, so please get advice about your own circumstances.
At a glance — testamentary trusts in Victoria
| What it is | A trust created by your will, which only comes into existence when you die |
| How a will is made | Wills Act 1997 (Vic) |
| How trustees must behave | Trustee Act 1958 (Vic) and the general law of trusts |
| Who runs it | A trustee you name in the will (often the executor, but not always) |
| Common uses | Protecting young or vulnerable beneficiaries; shielding an inheritance from a child's divorce, bankruptcy or creditors; staged or controlled distributions |
| Tax | Income distributed to minors from a testamentary trust is generally taxed under Division 6AA of the Income Tax Assessment Act 1936 (Cth) at ordinary rates — get tax advice |
| What it doesn't do | It doesn't stop a family provision claim under Part IV of the Administration and Probate Act 1958 (Vic) |
| What it doesn't cover | Assets that don't pass under your will — such as superannuation, jointly held property and many family trust assets |
| When a simple will is enough | Capable adult beneficiaries, a modest or straightforward estate, no particular protection needed |
| First consultation | Free, 30 minutes, no obligation |
What is a testamentary trust?
A testamentary trust is a trust that is created by the terms of your will and takes effect on your death, with a trustee holding and managing the assets for your chosen beneficiaries under the rules you set. Instead of your will saying "my home goes to my daughter", it might say "my home is held by my trustee for my daughter and her children, on these terms".
That small difference matters. Under a simple will, the assets pass to the beneficiary outright and become entirely theirs, along with every risk in their life. Under a testamentary trust, the assets are held by a trustee, and the beneficiary receives benefits — income, capital, or the use of a property — according to the trust terms. A will is made under the Wills Act 1997 (Vic), and the trust it creates is governed by that will and by the law of trusts, including the Trustee Act 1958 (Vic).
The first 30 minutes are free, with no obligation. Book a free consultation → · or speak to Eliana, our assistant, any time on 03 4328 5084 — she'll get your matter to Elisa quickly.
Who is a testamentary trust for?
A testamentary trust is most useful where you want to protect a beneficiary, or the inheritance itself, rather than hand over everything outright. Families most often consider one when:
- A beneficiary is a child or young adult who isn't ready to manage a large sum
- A beneficiary has a disability or vulnerability, and you want someone trusted to look after their interests
- A beneficiary's marriage or relationship may be unstable, and you want to protect the inheritance for your own bloodline
- A beneficiary has debts, or a risk of bankruptcy
- It's a blended family, and you want to provide for a partner now and preserve the rest for children from an earlier relationship
- You'd like to control the timing, such as staged distributions rather than a lump sum at 18
If none of those fit, you may well not need one. The point is not to make your will clever; it's to match the structure to your family.
How does a testamentary trust protect an inheritance?
By keeping the assets in the hands of a trustee rather than the beneficiary personally, a testamentary trust can help shield an inheritance from many of the ordinary risks in a beneficiary's life — though it isn't a guarantee. Because the beneficiary doesn't personally own the assets, they are generally harder for creditors, or a trustee in bankruptcy, to reach than money that has been paid outright.
The same thinking applies to relationship breakdown. If a child inherits outright and later separates, the inheritance may be treated as part of the pool of assets in a property settlement under the Family Law Act 1975 (Cth). If it is held in a testamentary trust, it may be treated differently — but the Family Court can look closely at a trust, particularly where the beneficiary controls it or is likely to receive its benefits. That is why the way the trust is drafted, and who the trustee is, genuinely matter. Our guide to how property is divided on divorce explains the starting point.
None of this is a promise: it reduces risk; it doesn't remove it.
How are testamentary trusts taxed?
In general, income of a testamentary trust that is distributed to a child under 18 is taxed at ordinary adult rates under Division 6AA of the Income Tax Assessment Act 1936 (Cth), rather than the much higher penalty rates that usually apply to minors' unearned income. This is often called "excepted trust income", and it's one reason testamentary trusts have a reputation as tax-effective for families with young beneficiaries.
That is a general description only: it applies to income from assets that came from the deceased estate, not money added later, and tax law changes. We don't give tax advice, so please speak to your accountant alongside Elisa so the structure and the tax outcome are planned together.
Who runs a testamentary trust?
The trustee runs a testamentary trust, and you choose who that is when you make your will — it can be the same person as your executor or a different one. The trustee holds the assets, makes decisions in line with the trust terms, keeps records, and has legal duties to the beneficiaries under the Trustee Act 1958 (Vic) and the general law.
Choosing a trustee is one of the most important decisions in the whole plan. If the beneficiary is also a trustee, it gives them flexibility but may weaken the protection you were aiming for. A sensible will also names a backup.
Running a trust is real work, including a separate bank account and annual tax return, so ask the person whether they're willing before you name them.
Does a testamentary trust stop someone contesting my will?
No — a testamentary trust does not stop an eligible person making a family provision claim under Part IV of the Administration and Probate Act 1958 (Vic). The Supreme Court can still make orders for those who qualify as eligible persons under section 90, and a trust doesn't change that.
What good planning can do is reduce the risk of a dispute. A clear will, sensible provision for the people you have a responsibility to support, and sometimes a written statement of your reasons can make a successful challenge less likely. Our guide to contesting a will in Victoria explains the claim from the other side.
What doesn't pass through a testamentary trust?
A testamentary trust can only deal with assets that form part of your estate under your will, so many assets people count as theirs sit outside it. The most common examples are:
- Superannuation, which is paid by the fund's trustee under the fund's rules and any valid nomination, not automatically under your will. It can be directed to your estate, and so into a testamentary trust, but that needs to be planned and you should get specific advice.
- Property held as joint tenants, which passes automatically to the surviving owner. Our guide to tenants in common vs joint tenants explains why.
- Assets held in a family trust or company, which follow the trust deed or company rules rather than your will.
A good estate plan looks at everything together.
When is a simple will enough?
A simple will is usually enough where your beneficiaries are capable adults, your estate is straightforward, and you don't need to protect anyone from a particular risk. For many couples with a home, some savings and adult children in stable circumstances, adding a trust would create cost and paperwork without real benefit.
A testamentary trust means ongoing administration and some loss of flexibility for the beneficiary, which can outweigh the advantages for a modest estate. Elisa will tell you honestly if you don't need one. Our guide to what a will costs in Victoria explains how structure affects the work involved.
What goes wrong without proper planning?
These are common situations that come up when an estate plan hasn't been thought through — described generally, not as any particular client's matter:
The inheritance paid out at 18. A young beneficiary receives a large sum outright on turning 18, with no guidance and no safeguards. A trust with a sensible age or staged distributions was never in the will.
The inheritance mixed into a relationship. A child inherits, buys a home with a partner and puts both names on the title. When the relationship ends, the inheritance is swept into the property pool.
The trust that the will couldn't reach. A person builds a detailed trust into their will, but most of their wealth is in superannuation and a jointly owned home, which pass elsewhere.
None of these mean trusts are risky. They mean the structure should fit the family, and the whole plan should be looked at together.
How we make it easy
How we make it easy: (1) a free, unhurried first call · (2) Elisa listens to your family and what you want to protect · (3) she tells you honestly whether a testamentary trust is worth it, or whether a simple will is enough · (4) your fee is confirmed in writing before any work begins · (5) one lawyer, Elisa, with you throughout.
What happens when you call us: Eliana takes a few details and passes them to Elisa, who calls you back. In that first conversation she'll ask about your family, your main assets and any worries, and explain your options. If you go ahead, she'll prepare a will — and, where it makes sense, an enduring power of attorney and the rest of your estate plan so everything fits together.
Frequently asked questions
What is a testamentary trust?
It's a trust created by your will that only takes effect when you die. A trustee you name holds your assets for your chosen beneficiaries under the terms you set, instead of the assets passing to them outright.
Who needs a testamentary trust?
Families who want to protect a young or vulnerable beneficiary, shield an inheritance from a child's divorce, bankruptcy or creditors, or control how and when it is received. If your beneficiaries are capable adults and your estate is straightforward, a simple will is often enough.
Is a testamentary trust tax-effective?
Often, but it depends. Income from estate assets distributed to a minor is generally taxed at ordinary adult rates under Division 6AA of the Income Tax Assessment Act 1936 (Cth). We don't give tax advice, so speak to your accountant about your own situation.
Can a testamentary trust protect an inheritance in a divorce?
It can help, but it is not guaranteed. The Family Court can look closely at a trust, especially where the beneficiary controls it or benefits from it. Careful drafting and a well-chosen trustee make a real difference.
Does a testamentary trust stop a family provision claim?
No. An eligible person can still apply under Part IV of the Administration and Probate Act 1958 (Vic), generally within 6 months of the grant of probate. A clear will and sensible provision can reduce the risk of a dispute.
Does superannuation go into a testamentary trust?
Not automatically. Super is paid by the fund's trustee under the fund's rules and any valid nomination. It can be paid to your estate, but that needs planning and specific advice.
Feeling unsure? That's exactly what Elisa is here for
Thinking about what happens to the people you love after you're gone is a caring thing to do, and it's rarely easy. Elisa will listen, explain your options in plain language, and help you decide on a calm, sensible next step — with the fee agreed in writing up front.
The first 30 minutes are free.
📧 info@fogartyoliverandrothschild.com.au
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Written and reviewed by Elisa Rothschild BA/LLB — Principal Lawyer, Fogarty Oliver Rothschild. Admitted to legal practice in Victoria. Wills, estates and family law in Melbourne since 2012.Last reviewed 31 October 2026.
This guide is general information about Victorian wills and estate planning, not legal advice for your specific situation. For advice on your matter, book a free 30-minute consultation.