A testamentary trust is a trust created by, and contained in, a will, taking effect on death. It is not a different kind of instrument from an ordinary will: the same formalities apply and the same grant of probate is required.

The difference is in the terms of the gift or inheritance as written in the will. Instead of giving property outright to a beneficiary, the will gives it to trustees to hold on the trust terms (the trust terms being the clauses of the will). The executor administers the estate in the ordinary way and, once the probate and estate administration process is complete, they hold the trust property as trustee.

A discretionary testamentary trust is a testamentary trust under which the trustee holds for a class of potential beneficiaries and has a discretion as to which of them benefits, and in what shares. No member of the class has a fixed or vested entitlement until the trustee exercises the discretion in their favour. That structure is used, in practice, for flexibility, for the protection of vulnerable or spendthrift beneficiaries, and for taxation reasons.

In general terms the trust must identify the trustee and any appointor who can hire and remove the trustee, define the beneficiary class with care, set out the trustee’s powers and discretions, provide default takers in case the discretion is never exercised, and fix a vesting date.

Testamentary trusts may be very different depending on the purpose for which it was created. For example, some trusts created with flexibility, tax minimisation and financial advice in mind may be very different from a trust created with the sole purpose of ensuring family wealth stays in the family, as opposed to a person’s spouse, in the event of a divorce.

A testamentary trust can be very simple, for example if it only seeks to provide for a beneficiary who may spend their inheritance frivolously or on harmful things such as drugs.

There are huge risks to any trust that attempts to deal with a spendthrift or drug addict beneficiary, or prevent the Family Court from looking into the trust, that can only be dealt with through careful and expert drafting.

In the case of the Family Court, the extent to which the Family Court will interfere with the testamentary trust depends on the level of control the beneficiary has over the trust, and even if a beneficiary has no control over the trust, the Family Court may take it into consideration if the beneficiary has received, or will receive significant distributions.

A testamentary trust does not put the estate beyond the reach of an inheritance claim. The Court’s jurisdiction under Succession Act 2023 (SA) ss 115–116, is directed at the estate and the deceased’s testamentary dispositions. Structuring an inheritance as a trust rather than an outright bequest does not defeat an eligible person’s claim. What this means is that the “spendthrift” beneficiary of a testamentary trust can try to crack open the trust if they do not like the conditions placed on their inheritance.