Testamentary discretionary trust Wills go beyond “who gets what.” They give your family structure, flexibility, and protection, so wealth can adapt to changing lives.
1. Protecting Wealth Across Generations
When people think about estate planning, most imagine a “simple Will” that sets out who
receives their assets when they pass away. While that approach can work in straightforward
situations, it may not provide the level of protection or flexibility many families need.
Increasingly, testamentary discretionary trust Wills (sometimes called “complex Wills”) are
becoming the gold standard for families wanting to secure wealth, reduce tax burdens, and
ensure their legacy lasts for generations.
2. What is a Testamentary Discretionary Trust Will?
A testamentary discretionary trust Will creates one or more trusts that only come into effect
after the Will-maker’s death. Rather than leaving assets directly to beneficiaries, those
assets are placed in a trust managed by a trusted person (the trustee). The trustee has
discretion to distribute income and capital to beneficiaries in the way that best suits their
needs and circumstances.
This means that instead of receiving assets outright, family members receive the benefits of
the trust—income, investments, or capital distributions—without directly holding ownership.
3. Why a “Simple Will” May Not Be Enough
The recent Federal Circuit and Family Court decision in Caldwell v Caldwell (2025) illustrates
the value of forward planning. In that case, family wealth held in a discretionary trust was
safeguarded in ways that direct inheritances often are not. The assets were not treated as
personal property in the dispute and were therefore protected from division as part of the
matrimonial property pool.
The Court’s findings reinforced a point we regularly make to clients: with the right structure,
testamentary discretionary trusts provide protection and flexibility that simple Wills cannot.
4. Benefits of Testamentary Discretionary Trusts
4.1. Asset Protection
Properly established trusts can safeguard inheritances against divorce settlements,
bankruptcy, creditors, or family disputes. Because assets are owned by the trust rather than
individuals, they are much harder to attack. In addition, assets held in a trust are generally
not counted when assessing eligibility for government pensions or benefits.
4.2. Tax efficiency
A key advantage of these trusts is their ability to distribute income in a tax-effective way. The
trustee can decide each year how income is allocated, allowing the family to make use of
lower tax thresholds across different beneficiaries. Children can receive tax-free income
within legislated limits, and income can be taxed separately from beneficiaries’ regular
earnings.
- Example 1 – Distributions to children:
A trust earning $100,000 can allocate income
across several minor children, each of whom may receive around $22,000 tax-free.
This can save tens of thousands of dollars compared with one person paying tax at
45%.
- Example 2 – Distributions to adults:
The trustee can allocate more income to lower-
income adults, avoiding the top tax rate for high earners and maximising the family’s
after-tax position.
5. Flexibility
Family circumstances change—children grow up, relationships shift, and financial needs
evolve. Testamentary discretionary trusts give trustees the power to adjust distributions so
that arrangements remain relevant over time.
6. Longevity
These trusts can last up to 80 years, keeping wealth within the family and supporting
multiple generations. This long-term structure ensures that your legacy is preserved and
continues to provide benefits well into the future.
Key Takeaways
Testamentary discretionary trust Wills are about more than protecting money. They
safeguard choices, relationships, and legacies. Families who use them gain peace of mind
knowing their wealth is structured to withstand life’s uncertainties while offering ongoing
benefits to loved ones.
If you’d like to explore whether a testamentary discretionary trust Will is right for your family,
our experienced estate planning team is ready to help.