Estate planning involves more than deciding who should receive your assets after you die. For some individuals and families, a testamentary trust will can provide greater control over how inherited assets are managed and distributed after death.

Depending on individual circumstances, a properly structured testamentary trust may also offer potential asset-protection, estate-planning or taxation advantages for certain beneficiaries. However, these outcomes are not automatic. The effectiveness of the arrangement depends on factors such as the terms of the will, the assets involved, the beneficiaries’ circumstances, trustee decisions and applicable law.

Mistakes in drafting or maintaining a testamentary trust will can create uncertainty, increase administration costs and potentially contribute to disputes between beneficiaries.

This article discusses common testamentary trust will mistakes primarily from a Western Australian perspective and explains some of the issues worth considering when reviewing an estate plan.

Important: This article provides general information only and should not be treated as legal, taxation or financial advice. Estate-planning requirements vary according to individual circumstances and jurisdiction.

1. Not Getting Appropriate Legal Advice

One of the first mistakes is treating a testamentary trust will as though it were simply a standard will with an additional clause.

Testamentary trusts can involve considerably more complex decisions. The document may need to address who can benefit from the trust, who will control it, what powers the trustee will have, when distributions can be made and what happens if circumstances change after death.

DIY will kits and generic templates may not adequately address complicated family structures, businesses, substantial assets or specific beneficiary circumstances.

Western Australia’s Legal Aid service notes that wills must satisfy legal requirements and recommends obtaining legal advice and, where possible, having a lawyer prepare the document.

How to reduce the risk: Discuss your objectives, family circumstances, assets and intended beneficiaries with an estate-planning professional before deciding whether a testamentary trust structure is appropriate.

2. Failing to Review the Will After Major Life Changes

Estate plans should not necessarily remain unchanged for decades.

Marriage, divorce, children, deaths within the family, changes in relationships, acquiring or selling a business and significant changes in assets can all provide reasons to review a will.

This is particularly important in Western Australia because marriage and divorce can affect the legal operation of an existing will.

In WA, marriage generally revokes an existing will unless an applicable exception applies, including circumstances where the will was made in contemplation of the marriage. Divorce also normally revokes a will, subject to exceptions.

The WA Public Trustee recommends reviewing a will at least every few years and following significant events such as marriage or divorce.

How to reduce the risk: Review your estate plan periodically and obtain legal advice after significant changes in your personal, family or financial circumstances. If changes are necessary, ensure they are made using legally appropriate procedures.

3. Using Ambiguous or Vague Language

Clarity is particularly important when a will establishes one or more trusts.

Instructions concerning beneficiaries, trustee powers and distributions need to reflect the testator’s intentions accurately.

For example, simply stating that assets should be “shared equally” may not address questions about valuation, timing, replacement beneficiaries or how particular assets should be treated.

Ambiguity can also arise when the will does not adequately explain:

• Who qualifies as a beneficiary
• Who controls the trust
• When distributions may be made
• What discretion the trustee has
• What happens if a beneficiary dies
• How particular assets should be managed

Poor drafting can create uncertainty and potentially contribute to disagreements during estate administration.

How to reduce the risk: Use clear provisions tailored to the estate and intended beneficiaries rather than relying solely on generic wording.

4. Choosing an Unsuitable Trustee

The trustee can have substantial responsibility for administering assets held within a testamentary trust.

Choosing someone solely because they are a close relative may not always produce the best result.

Relevant considerations can include the proposed trustee’s:

• Reliability and judgement
• Financial capability
• Relationship with beneficiaries
• Potential conflicts of interest
• Age and circumstances
• Willingness to undertake the role
• Ability to manage administrative responsibilities

For example, appointing someone involved in an ongoing dispute with another beneficiary could create difficulties when discretionary decisions need to be made.

How to reduce the risk: Consider the responsibilities involved before appointing a trustee. Depending on the complexity of the estate, discuss whether an individual, multiple trustees or an appropriate professional arrangement should be considered.

5. Assuming a Testamentary Trust Automatically Produces Tax Benefits

Potential taxation outcomes are one reason testamentary trusts are sometimes considered, but establishing one does not automatically guarantee a lower tax bill.

Tax outcomes can depend on numerous factors, including the terms of the trust, types of income and assets involved, beneficiary circumstances, trustee decisions and tax legislation applicable at the relevant time.

Capital gains tax and other taxation considerations may also arise when particular assets are transferred, sold or distributed.

This makes overly broad claims about testamentary trusts being “tax effective” potentially misleading.

How to reduce the risk: Where taxation is an important estate-planning objective, consider obtaining appropriate taxation advice alongside legal advice. Estate-planning decisions should be based on the actual circumstances rather than assumed tax advantages.

6. Ignoring the Individual Circumstances of Beneficiaries

Not every beneficiary has the same needs.

One person may be financially experienced and independent, while another may require assistance managing money. Other beneficiaries may be minors, have disabilities, experience financial vulnerability or require ongoing support.

Providing every beneficiary with an immediate lump-sum inheritance may therefore not always reflect the estate owner’s objectives.

A testamentary trust can potentially provide greater flexibility over how inherited assets are managed and distributed, but the terms need to reflect the circumstances for which the trust was created.

Where a beneficiary has a disability or requires ongoing support, estate planning may also need to consider interactions with other financial or support arrangements.

How to reduce the risk: Consider each beneficiary’s circumstances individually and obtain specialist advice where long-term care, vulnerability, disability or complex financial circumstances are involved.

7. Assuming Every Asset Will Pass Through the Will

One of the most important estate-planning concepts is that not every asset is necessarily controlled by your will.

A person’s estate may include assets held solely in their name, but other assets or financial interests can be governed by different ownership or nomination arrangements.

Depending on the circumstances, these can include:

• Jointly owned property
• Superannuation interests
• Assets held within trusts
• Company interests
• Life insurance arrangements
• Certain beneficiary-nominated assets

Consequently, simply creating a testamentary trust in a will does not necessarily mean every asset associated with the deceased will automatically enter that trust.

How to reduce the risk: Conduct a comprehensive asset review and identify how each significant asset is legally owned and how it may be dealt with upon death. Coordinate the will with the broader estate plan.

8. Giving the Trustee Inappropriate Powers

Trustees need sufficient authority to administer the trust effectively, but those powers should be appropriate for the trust’s objectives.

Overly restrictive provisions may make administration unnecessarily difficult. On the other hand, very broad discretion may not reflect what the person establishing the trust intended.

Relevant issues can include powers relating to:

• Investments
• Property management
• Distributions
• Sale of assets
• Business interests
• Professional advisers
• Record keeping
• Management of income and capital

The appropriate balance depends on the estate and beneficiaries.

How to reduce the risk: Ensure trustee powers are drafted deliberately and reflect the anticipated needs of the trust rather than simply adopting generic provisions without considering their effect.

9. Ignoring the Possibility of Family Provision Claims

Having a carefully drafted will does not necessarily prevent an eligible person from making a claim against an estate.

Western Australia’s Family Provision Act provides circumstances in which eligible people may ask the Supreme Court for greater provision from an estate. Eligibility can extend to categories including spouses or de facto partners, certain former partners, children and, in some circumstances, stepchildren, grandchildren and parents.

Importantly, being unhappy with an inheritance does not by itself mean a claim will succeed.

How to reduce the risk: Where there is a foreseeable possibility of a family provision claim—particularly where close family members or dependants receive substantially different provision—obtain specific legal advice. The appropriate planning strategy depends on the circumstances and should not be reduced to generic measures such as leaving a nominal gift.

10. Improperly Executing, Changing or Storing the Will

A carefully planned testamentary trust structure can still create problems if the underlying will has not been properly prepared or executed.

Western Australian legal guidance emphasises the importance of wills being properly signed and witnessed and warns that poorly prepared wills can contribute to delays and disputes.

Problems can also arise when people attempt to alter an existing will informally.

The location of the original document is another practical consideration. If executors do not know that a will exists or cannot locate the original, estate administration can become more complicated.

How to reduce the risk: Ensure the will satisfies applicable execution requirements and obtain advice before making amendments. Keep the original securely and make sure the executor knows where it is held and how it can be accessed when required.

11. Treating the Will as the Entire Estate Plan

Perhaps the most overlooked mistake is assuming that estate planning begins and ends with signing a will.

A comprehensive estate plan may need to consider how the will interacts with other arrangements, including:

• Superannuation
• Jointly owned property
• Family trusts
• Companies and business interests
• Life insurance
• Beneficiary nominations
• Powers of attorney
• Guardianship arrangements
• Existing loans or liabilities

These components can interact in complicated ways.

For example, an otherwise carefully drafted testamentary trust may not achieve its intended purpose if significant assets do not ultimately form part of the estate available for distribution under the will.

How to reduce the risk: Review the estate as a complete financial and legal structure rather than treating the testamentary trust will as a standalone document.

How Often Should You Review a Testamentary Trust Will?

There is no single review schedule suitable for everyone.

However, the WA Public Trustee recommends reviewing a will at least every few years and when important circumstances change.

A review may be particularly worthwhile following:

• Marriage or divorce
• Birth or adoption of children
• Death of a beneficiary, executor or trustee
• Significant changes in assets
• Starting, acquiring or selling a business
• Changes in family relationships
• Moving between jurisdictions
• Significant changes to financial arrangements

A review does not necessarily mean the will must be changed. Its purpose is to determine whether the existing arrangements still reflect the person’s intentions and circumstances.

Frequently Asked Questions

What is a testamentary trust?

A testamentary trust is a trust established under a will that takes effect following the person’s death and administration of the estate. The precise structure and operation depend on the terms of the will.

Does everyone need a testamentary trust will?

No. Whether a testamentary trust is appropriate depends on factors such as family circumstances, assets, intended beneficiaries, estate-planning objectives and costs associated with establishing and administering the structure.

Can a testamentary trust will be changed?

While the person who made the will remains alive and has the necessary legal capacity, their will may generally be changed or replaced in accordance with applicable legal requirements. Because informal amendments can create problems, obtaining legal advice is advisable.

What happens to a will after marriage in Western Australia?

Marriage generally revokes an existing will in Western Australia unless an applicable exception applies, such as where the will was made in contemplation of the marriage. Legal advice should be obtained to determine how marriage affects a particular will.

What happens to a will after divorce in Western Australia?

Divorce normally revokes a will in Western Australia, subject to exceptions. Because the effect depends on the document and circumstances, the will should be reviewed following divorce.

Does superannuation automatically become part of a testamentary trust?

Not necessarily. Superannuation death benefits are subject to separate rules and arrangements, so they should be considered as part of the broader estate-planning process rather than assumed to pass automatically under the will.

Can a testamentary trust will be challenged?

The existence of a testamentary trust does not necessarily prevent an eligible person from pursuing a family provision claim. In Western Australia, eligibility and the circumstances in which the Supreme Court may alter estate provision are governed by applicable succession legislation.

Conclusion

A testamentary trust will can be a valuable estate-planning tool in appropriate circumstances, but its effectiveness depends on much more than simply inserting a trust into a will.

Clear drafting, appropriate trustee selection, consideration of beneficiary circumstances, coordination of estate and non-estate assets, appropriate tax advice and regular reviews can all contribute to a more effective estate plan.

It is equally important to recognise that estate planning is highly individual. Strategies that work well for one family may be unsuitable for another, particularly where businesses, superannuation, blended families, vulnerable beneficiaries or substantial assets are involved.

For Western Australians considering a testamentary trust will, professional advice can help determine whether the structure is appropriate and how it should interact with the rest of the estate plan.

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