A Testamentary Trust Will (TT Will) is a powerful estate planning tool. Unlike a simple will that passes assets directly to beneficiaries, a TT Will creates one or more trusts upon the will-maker’s death.
These trusts:
- Specify a trustee who manages the assets.
- Identify beneficiaries who receive the benefits.
- Are created within the will itself and come into effect only after death.
A TT Will can be drafted to include Testamentary Discretionary Trusts (TDTs), giving trustees flexibility in distributing income or capital to beneficiaries.
Why Testamentary Trust Wills Are Important in Family Law Contexts
TT Wills are often used to protect inherited assets from:
- Divorce and separation disputes.
- Bankruptcy or creditor claims.
- Family disagreements over inheritances.
However, while they provide strong asset protection benefits, they do not offer absolute protection — particularly in the context of property settlements following a relationship breakdown under the Family Law Act 1975 (Cth).
How the Family Court Treats Inherited Assets
Under the Family Law Act 1975, inheritances are considered “property” — as confirmed in Bonnici & Bonnici (1992). This means that:
- An inheritance can form part of the matrimonial asset pool.
- There is no automatic exclusion for inherited property.
- Each case is determined on its specific facts.
The Family Court of Australia has the power to treat trust assets as:
- Property of the parties, or
- A financial resource of one party.
When Trust Control Makes a Difference
Case example — Ward v Ward [2004]:
A TDT was used to pass an inheritance to a son before separation. Because he held control, the court treated the trust as a financial resource available to him.
Key factor: Where a beneficiary is also trustee or holds appointor powers, the court may “look through” the trust structure and conclude they have effective control of the assets.
When a Testamentary Trust Will Can Protect Inheritance
Case example — Bernard v Bernard [2019]:
The husband’s sister was the sole trustee of his TDT. He had no control over the trust, and the court excluded it from the property pool. Factors included:
- He was not the settlor of the trust.
- He relied entirely on the trustee for any distributions.
- The trustee had full discretion on whether to distribute or accumulate income.
- He was only a discretionary beneficiary among many (including extended family).
- Trust assets had never been mixed with matrimonial property.
The court found that giving him direct access to the assets would breach the trustee’s duties to other beneficiaries.
Practical Takeaways for Estate Planning
While no strategy can completely prevent scrutiny by the Family Court, a well-structured TDT can significantly reduce risk. Steps to consider:
- Ensure the primary beneficiary is not the trustee or appointor.
- Appoint an independent trustee (such as a sibling or trusted advisor).
- Keep trust assets clearly separated from matrimonial property.
Following the Bernard v Bernard principles, a correctly established Testamentary Trust Will remains one of the best tools to protect an inheritance from forming part of the marital property pool.
📞 Considering a Testamentary Trust Will?
Our experienced estate planning lawyers can design a structure that protects your assets while meeting your family’s needs. Contact Intergen today to safeguard your inheritance.
Disclaimer: This article provides general information only and is not legal advice. You should seek tailored advice before acting on any estate planning matter.
