To make this concrete, we use the Doe family. Jane (48) and John (50) are married with 2 children, Mia (19) and Leo (15). Suppose both die in a car accident and, after the home is sold and debts are paid, their estate is $1.2m, split equally. Each child's share is $600,000.

What is the difference between a simple will and a testamentary trust will?

Both kinds of will can hold a child's money on trust. The real difference is what kind of trust it is and how long it lasts.

• Simple will: creates a short holding trust for 1 child with a fixed share. The executor holds it until the age you choose, then pays it out and the child owns it outright.
• Testamentary trust will: creates a discretionary trust, usually 1 per child, that can last up to 80 years in NSW. The child eventually controls it, but the trust owns the assets for a wide family class, including the child's future spouse, children and grandchildren.

Strictly, any trust created by a will is a testamentary trust, but "testamentary trust will" usually means the discretionary kind. It is not a separate document: until death it is just clauses in your will.

At what age does a child get their inheritance?

Under a simple will the executor holds a child's share and pays it out at 18, or a later age you choose such as 25. 2 drafting points decide whether a later age sticks.

• Contingent, not postponed: "to Leo if he reaches 25" means nothing is Leo's until 25. "To Leo, to be paid when he turns 25" is a vested gift with only the payment delayed, and an adult who is absolutely entitled can usually demand it at 18.
• Gift over: say who takes the share if the child dies first. Under a vested gift, if Leo dies at 22 his share could go to his partner; under a contingent gift it goes to whoever the gift over names, for example his children, otherwise Mia.

In a testamentary trust, the age you choose is the age the child becomes trustee and appointor (often 25). Until then a trustee you name, say Jane's sister Sarah, runs it. Even after 25, the money stays in the trust.

How is a child's inheritance managed before then?

The trustee can spend the income on the child and, if the will gives full power, use capital too when income does not cover school fees or medical bills. The money sits in a separate account in the trustee's name as trustee for the child. A trustee who misuses it must repay it personally, but that is only as good as their ability to pay, so the will can split the guardian and trustee roles, require 2 trustees, or require annual reporting. In a testamentary trust, the appointor can also replace a bad trustee without going to court.

Does a testamentary trust protect against bankruptcy?

Generally yes. Under a simple will the money lands in the child's name, so a trustee in bankruptcy can take it. In a discretionary trust no one, including the child, is entitled to anything until the trustee decides, so there is no property for a creditor to take.

Suppose Mia is 28 when her cafe fails and the bank calls a $400,000 personal guarantee. Under a simple will, the $600,000 she received at 25 is hers and goes to her creditors. Under a testamentary trust, a bankruptcy clause removes Mia as trustee and appointor, Leo steps in, and the trust assets stay out of reach until she is discharged.

What about divorce or separation?

Protection is weaker in family law. The court looks at who really controls the trust. If Mia is sole trustee and appointor and can pay herself capital, the court may treat the trust as her property and divide it, while recognising it as her contribution. If Leo is a joint appointor or co-trustee, it is more likely to be treated only as a financial resource: not divided, but the other partner may get more of the rest of the pool.

Either way, keep the inheritance separate from joint finances. A testamentary trust improves the position but does not quarantine the inheritance, and for a child in or entering a relationship a binding financial agreement may be the stronger tool.

How is income taxed for children under 18?

Many people think only a testamentary trust gets adult tax rates for children. In fact, the ATO treats income from a deceased estate, and from property passed to a child because of a death, as excepted income, taxed at adult rates either way. As at October 2026, the first $18,200 is tax-free for a resident, with the low income tax offset on top. Leo's share earning $30,000 a year is taxed as if he were an adult on $30,000, under either will.

One catch: income from assets added to the trust from outside the estate since 1 July 2019 is taxed at the much higher minor rates (45% on the whole amount once it passes $1,307). So each parent's will should create its own trusts, rather than the second estate being added to trusts made on the first death.

What is income splitting, and why does it matter?

The real tax advantage of a testamentary trust is income splitting, which a simple will cannot do. Each year the trustee decides which family members receive the income, so it is taxed at their lower rates rather than all at the top rate of the person who controls it.

Say Leo is 40, earns $220,000, and his inheritance has grown to $1m, earning $60,000 a year. His wife Priya earns $30,000 and they have children aged 8 and 10. Approximate 2026-27 resident rates, including Medicare levy:

That is roughly $23,000 a year saved, every year the trust runs. The rules: money distributed to a child must be used for that child, an adult must keep their distribution rather than hand it back, and resolutions must be made by 30 June each year.

One trust for all the children, or a separate trust each?

• One combined trust: one return and account, and money can follow need, such as Leo's school fees. The risk is sibling disputes.
• Separate trusts: clean control, and each child can split income within their own family, at the cost of more admin.
• The usual approach: a combined trust while the children are young that splits into separate trusts once the youngest reaches a set age; for adult children, separate trusts from day one.

What if a beneficiary is vulnerable?

• Normal testamentary trust: for a beneficiary who can manage their own affairs, such as Mia.
• Protective trust: an independent trustee controls the money for someone at risk from addiction, gambling, poor money management or pressure from others. If Leo developed a gambling problem, Sarah could pay his rent direct and give him an allowance.
• Special disability trust: a Commonwealth-regulated trust for a person with a severe disability who meets strict criteria. Assets up to an indexed limit, and a home it holds for them, are generally not counted against their pension.

You can mix and match, for example Mia's share outright and Leo's into a protective trust. See inheritance and Centrelink for how pensions are affected.

When is a testamentary trust will worth it?

There is no legal minimum, and the figures below are a general guide only, not rules. Count everything that will flow through the will, including life cover and super paid to the estate (a matching binding death benefit nomination can make sure it gets there).

• Under about $300,000: often not worth it for tax. A simple will with a contingent age of 25 does most of the job, with a protective trust for any vulnerable beneficiary.
• $300,000 to $1m: worth considering with minor children, a blended family, or a child in business or a relationship. Protection is the main reason.
• Over $1m: often worth it, as the tax savings can outweigh the running costs over time, depending on the income the assets earn and how many family members can receive it. The Does' $1.2m, plus Jane's life cover, would be a strong candidate.

An optional trust lowers the stakes: each child chooses within a set time (we usually use 2 years) whether to set up their trust or take their share outright. See Estate Planning for our fixed fees.

How does a testamentary trust run day to day?

Like any trust: assets are held in the trustee's name "as trustee for" the trust, with its own TFN, account and tax return. The bank will want the will (which is the trust deed), probate and ID. NSW titles do not record trusts, so land passing to Mia's trust is simply transferred into the name of its trustee (Sarah, until Mia takes over at 25).

Is a testamentary trust just a family trust created by a will?

Essentially yes, with 3 advantages over one set up during life.

• Children's tax: family trust distributions to minors are taxed at penalty rates, while a testamentary trust's income from estate assets gets adult rates.
• Getting assets in: moving existing assets into a family trust usually triggers capital gains tax and transfer duty. Assets pass from the estate to a testamentary trust without capital gains tax on the transfer and with only nominal duty.
• Who benefits: Mia and Leo would never set up family trusts, but get the same structure without doing anything.

NSW land tax is generally no better, as investment land in a discretionary trust usually gets no threshold. The exact land tax position depends on how the trust is set up and how long it has existed, so it should be checked when the trust is planned. For how you hold property now, see ownership structures, and for what happens after death, deceased estate property transfers. To put the right will in place, start at Estate Planning.

This article is general information only, current as at October 2026, and is not legal, financial or tax advice. Estate planning, tax and Centrelink rules change over time and their effect depends on your circumstances. You should obtain advice specific to your situation before acting.