A Testamentary Trust is a very flexible form of Will which protects 'at risk' beneficiaries from creditors. An 'at risk' beneficiary may be someone who has substantial business risk, is or may become a bankrupt or involved in current Court proceedings. A Testamentary Trust sets up a Trust/s for the benefit of the beneficiaries.
As with inheritances generally, if an interest in a Testamentary Trust is found to be an asset of a relationship, then it is subject to division in a family law matter.
If an interest in a Testamentary Trust is instead found to be a financial resource, then it will not be subject to division, but again, it can result in the other assets being divided in the other party’s favour.
To determine the characterisation of a Testamentary Trust in a family law matter, Courts will often examine the degree of control or influence the relevant party has in the Trust. They will also often consider:
When the benefit of the Testamentary Trust was received;
Whether the Testamentary Trust is discretionary in nature;
The level of “de facto control” over the Trust by the relevant party; and
Whether the trust can distribute income, capital or both.
The greater control a party has over a Testamentary Trust, the more likely the Court will find that the Testamentary Trust forms part of the parties’ pool of assets as opposed to a financial resource.
If a Court does not find that a vested interest in a Testamentary Trust forms part of the asset pool, the Court will still consider the interest as a financial resource.
The Court may consider an interest in a Testamentary Trust as a financial resource even before the interest has vested.