What are some of the disadvantages of having a Testamentary Trust?

In our last article about testamentary trusts we spoke about the advantages of having one, however they may not be suitable for everyone.

There are ongoing expenses for maintaining a testamentary trust, namely legal fees, accounting fees (for the preparation of tax returns), and in some instances fees payable to the trustee if a professional is used.  The will maker ought to consider whether the costs involved, and the complexity of the arrangement warrants the use of a testamentary trust.

In addition to the costs involved, any potential tax benefits that are available at the time that the Will maker is considering a testamentary trust may not be available in the future.  As for tax implications, all income and capital gains must be distributed to the beneficiaries annually otherwise the trust pays tax at the top marginal tax rate and the income that each beneficiary receives from a trust distribution is subject to tax at that beneficiaries’ marginal tax rate.