Testamentary Trust

What a testamentary trust is

A testamentary trust is a trust that is set up by a will rather than by a deed signed during the person's lifetime. Nothing happens to the assets while the testator is alive. The trust comes into being on death, when the executor collects the estate and hands the assets named in the will to the trustee, who then holds them for the people or purposes the will describes.

Readers who search for a testamentary trust in Mauritius are usually asking one of three things: how the structure works in practice, whether it can be used to shape who receives what, and how it interacts with the rules that reserve part of an estate for children. This page takes those questions in turn. It is general information, not advice on a particular estate.

The trust itself is governed by the Trusts Act explained in this site: the Trusts Act 2001 (Act 14 of 2001) came into force on 1 December 2001. A trust created by will is still a trust under that Act; what differs is the moment and the instrument by which it is created.

How a trust created by will works

A trust created by will follows a fixed sequence, and each stage involves a different person.

Two points follow from this sequence. First, the testator cannot run the trust: the person who would have been the settlor is no longer alive when the trust starts. Second, because the trust only receives what is left after the estate has been settled, it works within the estate rules, not above them.

Who plays which role

• Testator. The person who makes the will. Their wishes are expressed once and cannot be clarified afterwards, so the wording matters.
• Executor. Collects the estate, pays what is owed and transfers the trust assets.
• Trustee. Holds the assets and acts for the beneficiaries. See duties of a trustee toward the family.
• Beneficiaries. The people, or class of people, who benefit. Their position is covered in trust beneficiaries: rights and expectations.
• Protector (optional). A person who oversees the trustee, if the will provides for one.

Testamentary trust or living trust?

A living trust is created during the settlor's lifetime by a trust deed. A testamentary trust is created by will. The practical consequences differ.

The Trusts Act presumes that a trust cannot be revoked by the settlor, unless the instrument expressly says otherwise (article 11). For a testamentary trust this is rarely the issue, since the will can be changed until death. What matters is that after death the terms are fixed. Anyone choosing between the two routes should read trust or will for passing on assets and family trust in Mauritius.

Forced heirship and a trust created by will

Mauritian succession law reserves part of the estate of a person who leaves children. A will cannot freely give away that part. This is the rule commonly called forced heirship, and it is the main constraint on a testamentary trust.

The consequence is straightforward. A will can create a trust, but the assets it can put into that trust are, as a rule, those that remain once the reserved shares are respected. A will that tries to send the whole estate into a trust for one beneficiary, leaving the children nothing, invites a claim by the reserved heirs.

The details depend on who died, where they were domiciled, which assets are involved and who the heirs are. For the rules in full, see forced heirship and trusts in Mauritius, can you disinherit a child in Mauritius? and who inherits when there is no will.

Foreign testators

The Trusts Act 2001 contains a specific rule for settlors who are not Mauritian citizens (article 8): the transfer to the trust cannot be annulled under the succession rules of the settlor's domicile or nationality. That wording speaks of a settlor's transfer. Whether and how it applies to assets passing under a will is a question to put to an adviser before relying on it, particularly where immovable property in Mauritius is involved. The position of a non-citizen is also discussed in wills for foreigners owning assets in Mauritius.

A decision aid

What a will-created trust is good for

The structure suits cases where assets should not pass outright to the beneficiary on death:

• Minor children. Assets are held until the child reaches the age set in the will, rather than being handed over at once. See trust for minor children.
• A surviving spouse who needs income. The trust can give one person the benefit of the assets for life, with the capital then passing to others. See life interest trust.
• A beneficiary who may struggle to manage money. The Trusts Act 2001 recognises protective, or spendthrift, trusts (article 18): a beneficiary's interest can be made subject to termination, restriction on transfer or suspension if the beneficiary becomes insolvent or their property is seized.
• Staged distributions. The trustee can release capital according to conditions set in the will.

A testamentary trust is not suited to every estate. Where the aim is to move assets out of the estate before death, or to keep the structure private from the outset, a living trust usually answers better.

Writing the will and the trust terms

The will is the only instrument. If it is vague, no one can ask the testator what was meant. A well-prepared will that creates a trust normally settles the following:

• the name and purpose of the trust;
• the assets or share of the estate that go into it;
• the trustee and a replacement if the first cannot act;
• the beneficiaries, whether named individuals or a class;
• how and when the trustee may distribute income and capital;
• any protector and that person's powers;
• what happens if a beneficiary dies or if the trust ends.

A separate letter of wishes can guide the trustee on how to use any discretion. It is not binding in the way the will is, so anything essential belongs in the will itself. The same terms are set out for lifetime trusts in what a trust deed contains.

Choosing and supervising the trustee

The Trusts Act 2001 allows a trust to have no more than four trustees (article 28), and at least one of them must be a qualified trustee at all times. A qualified trustee is an FSC-licensed corporate service provider (Management Licence) or another Mauritius-resident person authorised by the FSC to provide trustee services (article 2). The Act also says the trust does not become invalid merely because a trustee or a qualified trustee is missing.

Because a testamentary trust may run for many years after the testator is gone, the choice of trustee deserves care. The will should say how a trustee can be replaced. If the will appoints a protector, the Act (article 24) allows that person to advise the trustee and, unless the instrument says otherwise, to remove and appoint trustees. Read more in trust protector in Mauritius.

How long the trust can last

For a trust that is not a purpose trust, the maximum duration is 99 years from its creation, unless it ends earlier (article 9). Income may be accumulated for the full duration, except that accumulation cannot go beyond 25 years where the trust holds immovable property in Mauritius (article 10). See how long a Mauritius trust can last.

Records, registers and tax

Once the trust is running, ordinary trust obligations apply:

• The trustee must keep up-to-date accounts and records, and an alphabetical register of the names and last known addresses of each beneficiary and settlor. Accounting records must be kept for at least 5 years after the operations concerned are completed (article 38(3)).
• The FSC keeps a register of trusts that have at least one qualified trustee (article 26A of the Financial Services Act 2007), and the qualified trustee must supply the information the FSC requires.
• Under the Income Tax Act 1995, a trust is taxable on its taxable income at the Part IV rate of 15%, and any distribution to a beneficiary is treated as a dividend in the beneficiary's hands (article 46).

How these rules apply to the income of a will-created trust, and to the beneficiaries' own tax position, depends on residence and on the assets. See how trusts are taxed in Mauritius and, for the death itself, what happens to a trust when the settlor dies.