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WHAT IS A TESTAMENTARY TRUST?

Mon, 1 Apr 2019

WHAT IS A TESTAMENTARY TRUST?

Considered and strategic estate planning is a crucial part of any successful wealth protection strategy, and Affinity Lawyers have an experienced and professional wills and estate team in place to provide you with legal advice tailored to your individual circumstances.

Our Wills & Estate lawyers, based on the Gold Coast, can prepare a premium Affinity Lawyer Will or an Affinity Lawyers Wealth Protection Will (a testamentary Trust Will) for you, depending on your needs.

What is a Testamentary Trust?

A Testamentary Trust is a trust established in someone’s Will.    It comes into existence only when the person dies.  A Will can establish more than one Testamentary Trust, such as a separate trust for each beneficiary.

Who Controls the Assets?

Whoever is named in the Will as trustee will control the trust’s assets, at least at first instance.  Like any trust, a Testamentary Trust can be as flexible or as fixed as you want.  The trustee can be given full discretion, or no discretion as to who should receive income and capital from the trust, and when they should receive it.

Why Are They Used?

Testamentary Trusts can be used for a variety of purposes including:

 

-    Reducing tax.

-    Protecting spendthrift beneficiaries from themselves.

-    Caring for children when they are young.

-    Caring for beneficiaries who may have a disability.

-    Providing some scope for keeping an inheritance out of the reach of the Family Court, where the beneficiary is involved in a Family Law property dispute.

-    Protecting inheritances from a beneficiary’s creditors.

-    Providing some scope for avoiding an unintended loss by a beneficiary of their Government-sources pension or other benefit.

 

Using a Testamentary Trust for income splitting with young children and/or a partner who does not work full time

 

Who would benefit?

 

-    Families with small children and/or a person whose partner does not work full time.

-    Those who would need extra income to support the surviving family members should a parent die.

-    Those for whom minimising tax is important.

 

How does it work?

 

Benefits

Trust income distributed to children, of any age, will be taxed at adult rates rather than the penalty rates that normally apply to children's’ unearned income.  The trustee can have full discretion as to who receives trust income and capital, or restrictions can be placed on the persons who are permitted to receive trust income and capital.

Our solicitors can go through the benefits of a Testamentary Trust with you in further detail during your estate planning consultation.

Estate Planning and Asset Protection

Most people would be more than happy to receive an inheritance.  But for those who have not put in place asset-protection strategies or who could be facing bankruptcy, this can cause a problem.

People in financially high-risk occupations, such as professionals, business owners and company executives, will often prefer to not receive inherited assets in their own name.  To solve the problem they can ask for there to be included an appropriate provision, such as a Testamentary Trust, in the Wills of people likely to leave them assets.

Example - John owned his own business which, during an economic downturn, was placed in liquidation.  As a result, John was made bankrupt.  A year earlier, John received an inheritance of $250,000.  As John received his inheritance in his own name, it was able to be taken and used to pay creditors of John’s business.  If John’s parents wills had been Affinity Lawyers Wealth Protection Wills, John’s inheritance may not have been available to creditors of his business.

Example - Anne owned and ran a high-profile design company.  She had deliberately ensured that most of her assets were in her husband’s (Bob’s) name.  At least that way, if her business went bad, their home and savings would be protected.  When Anne’s parents died, she received the family beach house.  Though the business was doing well, its future success was not guaranteed.  To protect the beach house from a possible trustee in bankruptcy, she transferred it to a trust and paid $23,000 in stamp duty.  This expense could have been avoided if Anne’s parents wills had been.

For more information about strategies for planning your estate or an Affinity Lawyers Wealth Protection Wills contact one of our experienced Gold Coast Lawyers on 5563 8970.

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