If you ask the average person on the street what they must do to prepare for what happens after they pass away, they’ll most likely say, write a Will. And, for some individuals and their families, that might be enough.
But in today’s modern world, with its rising property values, blended families, business ownerships, and concerns about protecting children’s inheritances, having just a Will could be an issue.
This is why grasping the relationship between Wills & Trusts is crucial. A properly structured estate plan obviously shouldn’t make things complicated for the sake of it, but it must ensure your wealth, intentions, and the people you care about are properly protected after you’ve gone.
Below, our Wills and Trusts overview helps you understand how these legal tools work, and when a standard setup falls short. We’ll also explore other legacy planning tools, and how proposed changes might affect your family’s inheritance.
What Is the Difference Between a Will and a Trust?
A Will – Explaining Your Wishes After Your Passing
In simple terms, a Will is a legally binding document that you create, ideally with the guidance of a Wills and Estates lawyer, that explains how you want your assets to be distributed after you die. You name an Executor who will manage the estate administration and, if relevant, nominate guardians for young children.
A Professionally Drafted Will Can:
- Nominate who should inherit your property, cash, and possessions.
- Take away uncertainty for your loved ones.
- Appoint trustworthy decision-makers.
- Give important legal guidance details after your death.
What’s more, a Will can generally be updated or revoked at any time while you still have mental capacity. Regularly reviewing your Will allows you to adapt your estate planning to suit life changes that happen, like marriage, divorce, children, business ownership, or financial circumstances. This ensures your wishes remain exactly as you intended.
A Testamentary Trust – Creating Long-Term Protection for Your Family
This is a legal structure where a person, known as the Trustee, holds, manages, and distributes your assets for the benefit of others, the Beneficiaries. Where a basic Will usually passes inheritance directly to your loved ones, a Testamentary Trust gives more flexibility over how and when the wealth is given out.
This Can Be Especially Useful Where There Are:
- Young children.
- Vulnerable beneficiaries.
- Blended families.
- Business interests.
- Worries about safeguarding inheritances from creditors, divorce or subsequent re-partnering.
For estate planning, Trusts typically fall into two categories. First, inter vivos Trusts (sometimes referred to as Family Trusts). These are created and operate while you’re alive.
The second are Testamentary Trusts, the most important in Will planning, which are created through your Will and only come into effect after you pass away.
Trusts can also be structured in different ways. Some are Fixed Trusts, where the beneficiaries get predetermined entitlements. Others are known as Discretionary Trusts, where the Trustee is given the flexibility to decide how income or assets are distributed amongst beneficiaries over a period of time.
When Is a Simple Will Not Enough?
When your financial circumstances are straightforward, and your family situation is uncomplicated, a basic Will is often a perfectly fine, cost-effective route. For example, if you have a relatively modest estate, no business interests whatsoever, and you want to pass everything directly to your spouse or adult child.
Yet modern Australian family life is typically more complex. Having only a basic Will could inadvertently lead to financial risks, or arguments.
Blended Family Estate Planning
If you have a blended family, a Will could, unintentionally of course, disinherit your biological children. For instance, if you leave everything to your current spouse, and they die later, their Will might state that your assets go to their children or a subsequent partner, leaving your own children with absolutely nothing.
So, how can a Trust help with blended family estate planning? Trust structures can help you forge a more balanced arrangement, allowing your surviving partner to continue to benefit from assets during their lifetime. And you can still protect the underlying inheritance intended for your children from any previous relationships.
Estate Planning for Business Owners
Entrepreneurs and business owners generally need far more sophisticated estate planning than a simple Will. A standard Will could lead to operational disruption, delays accessing accounts, uncertainty around control, and disputes regarding ownership or management succession.
Estate planning structures, such as Trusts, can work as powerful planning tools for your enterprise. You can transfer ownership, shares, or control to a Trustee rather than directly to beneficiaries. This then allows the business to continue operating smoothly without conflicts over who holds power.
Protect Inheritance From Divorce
If you leave an inheritance to your adult children, and they later go through a divorce or separation, then their ex-spouse or de facto partner could have a claim on that legacy. Should this make you feel somewhat uneasy, a Testamentary Trust could be a sensible route.
It may help provide an additional layer of protection, by separating control of the inherited assets from personal ownership. While every situation depends on the specific structure and circumstances involved, Trusts can sometimes reduce the risk of inherited wealth becoming tangled up in messy future relationship disputes.
Protect Vulnerable Beneficiaries
Sometimes you may have to protect someone from themselves. A Will-directed inheritance might not be appropriate if the beneficiary is:
- Vulnerable to gambling, addiction, or some kind of financial abuse.
- Having some mental health challenges.
- Generally poor with money or impulsive with spending.
- Going through challenging personal circumstances.
- Young, or just lacking financial maturity.
A Testamentary Trust allows assets to be managed more carefully by a trusted person on the beneficiary’s behalf. Rather than the inheritor getting a large lump sum in one go, the funds can potentially be distributed gradually, used for living expenses, or managed in a way that supports the beneficiary’s wellbeing.
Protect Inheritance From Creditors
Direct inheritances can also become vulnerable if a beneficiary later faces bankruptcy, legal action, business failure, or significant personal debt.
Depending on how the estate planning structure is established, a Testamentary Trust could help reduce the threat of inheritances becoming exposed to creditors or third-party legal claims. As the assets are generally held within the Trust structure, rather than personally owned, they may receive a greater level of protection.
This is especially important for people in high-risk professions (e.g. lawyers, doctors, directors of companies), where people may be at greater risk to personal litigation.
Can a Testamentary Trust Protect My Children’s Inheritance?
Potentially, yes, you can protect your children’s interests with a Trust.
Rather than your legacy being transferred directly into your child’s bank account, the inheritance can instead stay inside a Trust structure and be managed by a Trustee, according to the terms of your Will.
And, according to how the Trust is set up and managed, this may help reduce risks as mentioned above, such as relationship breakdowns, bankruptcy, or vulnerable people.
Testamentary Trusts can also give greater flexibility for the long term, allowing monies to be distributed gradually and managed more carefully as circumstances change over time.
What Happened With the 2026 Proposed Testamentary Trusts Changes?
In the May Budget, the government proposed to hit future Testamentary Trusts with a flat 30 percent minimum tax, removing the income spreading benefit. But, ultimately, the government announced it would exempt Discretionary Trusts from this tax. That said, new rules do apply:
- Assets – the tax exemption only applies to income that’s generated from the original assets of the deceased estate.
- Beneficiaries – any new Testamentary Trusts made after the 1st of July 2028 can only make distributions to individuals and tax-exempt entities, like charities, they can’t be made to other corporate structures.
Even with these specific refinements, Testamentary Trusts still retain their core tax efficiencies, which is why they remain a valuable opportunity for families in the right circumstances to protect assets for their loved ones.
The Bottom Line – Do I Need a Will or a Testamentary Trust?
Firstly, it’s not a matter of deciding between one or the other.
Whatever your circumstances, you must always ensure you have a professionally drafted Will. Otherwise, your estate will most likely be distributed under intestacy rules, meaning your loved ones receive less than you intended, or nothing whatsoever.
However, when you create your Will, you should think about whether your legacy should be distributed outright, or if it should be further protected by a Testamentary Trust. This depends on what suits your family, assets, and long-term wishes best.
For example, this can include:
- What assets you’re leaving behind.
- Who you’re leaving them to.
- The complexity of your family situation.
- Whether there are concerns involving divorce, creditors, vulnerable beneficiaries, or future disputes.
For some families, a straightforward Will may be entirely appropriate. For others, a Testamentary Trust can provide valuable long-term flexibility, protection, and peace of mind. Discussing your situation and wishes with a Wills and Estates Lawyer is the optimum route.
Powerful Estate Planning Involves More Than Just Wills and Trusts
While Wills and Testamentary Trusts are undoubtedly incredibly important foundations, your estate planning should look at a much broader financial and family view. This is particularly crucial if you have property portfolios, business interests, blended families, young children, superannuation, or existing Trust structures.
A carefully considered estate plan may also include:
- Superannuation and Binding Death Benefit Nominations.
- Enduring Powers of Attorney.
- Medical Treatment Decision Makers.
- Business succession planning.
- Asset protection strategies.
- Existing family or Discretionary Trust structures.
- Regular reviews of estate planning documents as family and financial circumstances evolve.
Consider these situations for a moment. Your superannuation may sit outside your Will entirely, or an enterprise you own might not transfer control after your death the way you expect. Old documents might no longer reflect your current relationships, assets, or wishes.
That’s why estate planning isn’t about one or two documents. It’s about moulding a complete strategy that works seamlessly together to help protect your family, assets, and wishes.
Wills, Trusts, and Estate Planning for Families in Victoria
You want your legacy to be fair, reduce stress for beneficiaries, protect relationships, and make sure that the people you love are properly looked after when you’re gone.
Perhaps, in your situation, a straightforward Will gives all the protection your loved ones need. Or maybe, you require more advanced planning involving Testamentary Trusts, blended family estate planning, business succession planning, or inheritance protection strategies.
Getting tailored legal guidance can give you enormous peace of mind for the future.
At Bayside Wills and Estates Lawyers, our considerate team helps individuals and families better understand how Wills, Trusts, Testamentary Trusts, and broader estate planning structures all work together.
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