A testamentary trust is a trust created by will. It is usually a discretionary trust. The testator of a will creates a trust and directs the trustee to hold property in accordance with the terms of the testamentary trust for specified beneficiaries.
At some future time the trustee distributes the property to the beneficiaries of that trust. Testamentary trusts are often recommended by financial planners and accountants. They are very useful for parents of small children (minor beneficiaries). Testamentary trusts tend to be driven more by the needs of the beneficiaries than by tax considerations. If a testamentary trust fails, the property will usually be held on resulting trusts for the testator’s residuary estate. A testamentary trust has two main advantages for a will maker and the nominated beneficiaries asset protection; and income splitting.