Testamentary Trusts in New Zealand
A testamentary trust is a trust created within your will that only comes into effect after you pass away. This structure allows you to control how assets are held, protected, and distributed for years or decades after death.
Why Use a Testamentary Trust?
To Protect Children
Keeps assets safe until your children or grandchildren are ready.
For Blended Families
Ensures assets stay with your children, not a future partner of your spouse.
For Vulnerable Beneficiaries
Useful when a beneficiary struggles with:
- Spending or debt issues
- Addiction
- Relationship instability
- Disability
Tax-Smart for Minors
Income allocated to minors can be taxed at lower rates (case-by-case; get legal advice).
How a Testamentary Trust Works
- You specify rules in your will
- Trustees manage the assets after your death
- Beneficiaries receive financial support or distributions according to your instructions
The trust remains dormant during your lifetime and only activates upon death.
Typical Use Cases
- Children under 25 – Assets held until they reach maturity
- Beneficiaries with disabilities – Ongoing support without affecting government benefits
- Protecting assets from future relationship breakdowns – Ensures your children’s inheritance stays protected
- Second marriages – Balance between providing for a spouse and protecting children’s inheritance
Key Benefits
- Control from beyond – Your wishes are enforced after death
- Asset protection – Shields inheritance from creditors, relationship property claims
- Flexibility – Trustees can adapt to changing circumstances
- Tax efficiency – Potentially lower tax rates for minor beneficiaries
What It Covers
- Property and real estate
- Investments and shares
- Business interests
- Cash and savings
- Personal items of value
How It Differs from a Family Trust
| Feature | Family Trust | Testamentary Trust |
|---|---|---|
| Created | During your lifetime | In your will |
| Activation | Immediately | After death |
| Your control | You can be trustee | Posthumous only |
| Cost | Higher setup | Included in will |
Costs
- Will + testamentary trust drafting: $800–$2,500
- Annual administration: $500–$1,500+ (after activation)
- Trustee fees: Often family members serve without fees initially
Setting Up a Testamentary Trust
- Consult with estate planning specialist
- Draft or update your will with testamentary trust provisions
- Appoint suitable trustees (can be family, professionals, or both)
- Define beneficiaries and distribution rules
- Review regularly as family circumstances change
Important Considerations
- Choose trustees carefully – they’ll manage assets after you’re gone
- Be specific about distribution rules
- Consider appointing independent trustees for objectivity
- Review your will every 3-5 years
- Discuss your intentions with trustees and family
FAQs — Testamentary Trusts
Does a testamentary trust replace a family trust?
No, they serve different purposes. A family trust operates during your lifetime for asset protection. A testamentary trust activates after death for controlled distribution.
Can I set more than one testamentary trust in my will?
Yes. Many people create separate trusts for different children or purposes.
How long can it run?
Up to 125 years under the Trusts Act 2019.
Do trustees get paid?
They can be, but family members often serve without fees. Professional trustees charge annual fees.
Can my partner access the assets?
Only if you specify that in the trust terms. You can allow your spouse to benefit while protecting the capital for your children.
What happens if I don’t have a testamentary trust?
Assets pass directly to beneficiaries under your will, with no ongoing protection or control.
Can the trust be challenged?
Yes, but a well-drafted trust with clear reasoning is harder to challenge successfully.