A Testamentary Trust is a legal entity created (usually) within a person’s Will which holds a distribution from an estate “on trust” for a specific beneficiary and/or class of beneficiaries.

The simplest way of thinking of a Testamentary Trust is to analogize the Trust to a bank and bank account.

The account holder is a “Trustee,” and the Trustee decides whether to deposit funds (or invest moneys) and whether to spend the funds.  Quite often the Trustee is the intended gift recipient, because they can control how the inheritance is invested or paid out (even if it is exclusively to themselves).

The bank manager is the “Appointor,” and the Appointor is tasked with replacing the Trustee (for any number of reasons).  The Appointor must be the most trustworthy person a client nominates.

The creditors of the “account holder” are the “Beneficiaries.”  The Beneficiaries are often known as “Primary” and “Secondary”.  The “Primary Beneficiary” is typically the person who would have received a “simple distribution”.  They are the intended gift recipient.  The “Secondary Beneficiaries” are usually the children and/or partners of the “Primary Beneficiaries.” The writer recommends limiting beneficiary pools to “bloodline” members of a client’s family, but this is a personal choice.

A Testamentary Trust is for easy to administer and cost effective and allows for significant tax planning, which is purely legal.  Further the Testamentary Trust is perfect for spendthrift or “at risk” beneficiaries who otherwise are poor money managers and need protection.

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