Purpose of a testamentary trust
A testamentary trust provides accommodation, income or both for the benefit of the beneficiary. These types of trusts can be established under the terms of a Will or from a court order or agreement.
Types of trusts and beneficiaries
Discretionary trust
Discretionary trusts give the trustee the ability to decide who may receive income or capital from the trust and in what proportions. This means that distribution of income or capital from the trust is not fixed.
Contingent trust
The beneficiary is entitled to assets or funds when they meet a certain condition such as turning a certain age. They can only request to withdraw funds from the trust under certain circumstances such as for healthcare, maintenance or education expenses. The amount that can be withdrawn is limited by legislation to 50% of the capital over the life of the trust.
Life interest beneficiary
The primary beneficiary is entitled to the full benefit of an asset for the duration of their lifetime. These assets could include a family home, cash assets, shares or other investments. The primary beneficiary is entitled to receive any income generated, without inheriting the asset.
The life interest ends when the primary beneficiary dies or surrenders their interest. When this happens, the estate passes to the remainder beneficiaries.
Right of residence beneficiary
The primary beneficiary is entitled to reside in a property for their lifetime, or up to a certain time, without inheriting the asset.
The right-to reside ends when either:
- the primary beneficiary permanently vacates the property
- upon the happening of an event as stipulated in the trust document.
When this happens, the property passes to the remainder beneficiaries.
Primary and remainder beneficiaries
Life Interest or Right to Reside trusts have 2 types of beneficiaries.
- A primary beneficiary is someone who benefits during the life of the trust. This could be by living in a property held by the trust, receiving income generated by the trust, or both.
- A remainder beneficiary is someone who inherits part or all the assets when the trust comes to an end.
Primary and remainder beneficiaries have different objectives for the trust. Our role as trustee is to act impartially to meet the objectives of both primary and remainder beneficiaries. Our goal is to ensure both achieve the best possible benefits.
We do this by:
- achieving reasonable income from the trust to meet the needs of the primary beneficiary
- preserving the capital value of any assets to meet the needs of the remainder beneficiaries at the end of the trust.
Our role as trustee
When a new testamentary trust is established, we provide each beneficiary with information about:
- the trust assets and your entitlements as beneficiary
- our responsibilities as trustee as part of our role administering the trust
- your responsibilities as beneficiary
- our fees and charges to administer the trust.
We have a team of people who are here to help and will support you with any questions or concerns you have along the way.
For more information about our role as a trustee, we have the following guide to download.
How we administer a testamentary trust
You should note that the following information is an overview and may vary depending on the type of trust. Our trust administration team can provide you with more information that is specific to your circumstances.
1. We review the financial plan each year
Each year we review the financial plan for the trust to ensure it meets your needs and to ensure the trust assets are protected. The financial plan also considers independent expert advice about investment options suitable for your circumstances.
2. We manage and invest funds
Each year we review the investment strategy for the trust. We place funds in the most suitable investment options for both the primary and remainder beneficiaries. We consider your individual circumstances as well as seeking independent investment advice.
A financial planner may select investment products they consider appropriate. They may select Public Trustee Investment products and products from their own recommended product list. Depending on your needs, we may invest money in one or more of the following:
- Public Trustee Term Investment Account
- Public Trustee Investment Fund – Growth trust
- Other investments as recommended by our financial planners from their product list.
Our aim is to ensure any investment made is the most suitable for your circumstances now and in the future.
Learn how we invest your funds
3. We manage any property investments
When a property forms part of the trust, we work with the primary beneficiary to ensure the property is maintained and protected.
As trustee we are responsible for
- ensuring the property is adequately insured
- arranging annual building and pest inspections to assess the condition of the property and that compliant smoke alarms are installed.
- arranging property valuations every three years to ensure the replacement cost is reflected in the building insurance.
If you’re the primary beneficiary, you’re responsible for
- paying property and water rates
- paying insurance for the property
- paying maintenance costs for the property
- paying utilities, while you reside in the property
- advising us of any issues relating to the property.
4. We provide financial records
We provide you with an annual statement that details:
- our fees to manage the trust
- outlays from other providers
- income received
- any funds distributed to beneficiaries.
We also provide tax information each financial year for lodging tax returns.
5. We disperse funds to the primary beneficiary if applicable
Depending on the type of trust, any income earned by the trust investments may be distributed to the primary beneficiary on an annual basis.
An annual payment, also called a distribution, will be made to your nominated bank account. The timing of the distribution is dependent on the income being available from the invested assets and may vary from year to year.
6. We close the trust and distribute assets to beneficiaries
When the trust comes to an end, we work with the remainder beneficiaries to:
- finalise the trust
- distribute the assets as instructed under the terms of the trust document.
Withdrawing funds from the trust
For both contingent and Discretionary trusts, you can make a request to withdraw funds from the trust. However, it must be for your direct benefit as outlined under the terms of the trust document.
You can use funds for purposes such as healthcare, maintenance or education expenses.
There may be a limit to the amount of financial assistance that can be released from a trust. That amount will depend on the type of trust and the terms of the trust Deed or Will.
For other types of trusts, funds cannot be withdrawn from the capital of the trust. The only funds the beneficiary is entitled to receive is net income generated from the trust that is gained through investments. This net income is after all costs of the trust have been paid.
When requesting funds from the trust it’s important to understand that this can affect the final balance of the trust. When there is less money invested, it can reduce the amount of returns you will gain. It can also reduce the amount of money available at the end of the trust.
Fees and charges for our testamentary trust services
The fees Queensland Public Trustee charges for administering a testamentary trust are based on the amount of effort required. Our fees are calculated on an annual basis and charged to the trust monthly.
The types of fees and charges vary depending on the needs of the individual trust. We provide you with a summary of all fees and charges as part of your annual statement.