What is a Testamentary Trust?

A Testamentary Trust is simply a trust established by a person’s Will.  As opposed to more “simple” Wills, where beneficiaries receive the benefit of any gift personally, with a Testamentary Trust, the beneficiaries receive the benefit of the gift but rather than having it legally owned by them personally, a trustee holds the relevant asset in trust for them.
Wills with Testamentary Trusts are recommended by many lawyers, accountants and financial advisers for various reasons, including asset protection and taxation advantages.

Asset Protection

Because of the legal ownership being different to the beneficial interest, Testamentary Trusts can offer beneficiaries significant and important advantages such as asset protection. As the trustee of the Testamentary Trust owns the asset (not the primary beneficiary personally), creditors and trustees in bankruptcy of the relevant beneficiary cannot gain access to the asset.

Often, beneficiaries are in business for themselves and have implemented asset protection measures so as to keep their assets safe from claims by third parties. The last thing the beneficiary may want is to receive an inheritance in their personal name, effectively undoing all of their efforts to safeguard their assets!

Testamentary Trusts can be drafted so as to have the beneficiary effectively control the trust and for that control to be relinquished on the occurrence of certain events, such as bankruptcy or divorce/marital separation, with a nominated person to act in the role of trustee whilst that incapacity remains.

Taxation Benefits – Income Splitting 

There can be significant tax advantages in taking an inheritance through a testamentary trust, in addition to asset protection.

Rather than taking a gift in a personal capacity as would usually be the case with a more “basic” Will, with a Will that incorporates Testamentary Trusts, beneficiaries have the ability to split income earned among other people in their family such as spouses, children, grandchildren or any other company or trust in which they have an interest.

Where an estate has income producing assets such as an investment property, under a more “simple” will, the person who received that gift would have the income earned from that asset added on top of the income they already receive from their employment or investments. This could mean that they go into the next marginal tax bracket and pay significantly more tax.

A Testamentary Trust allows the income earned to be split amongst the various family members, many of whom are likely to either not be working (so the tax-free thresholds become available) or earn lower incomes (and are therefore in lower taxation brackets).

Children that receive income from a Testamentary Trust are taxed at marginal rates as if they are adults (as opposed to the usual discretionary / family trusts, where they are taxed at unearned income penalty tax rates) so for a family with a non-working spouse and several children, significant income can be received whilst very little or no tax may be payable on the testamentary trust income.

Coulter Roache is holding their final Estate Planning session for the year next Monday 5th December at our Geelong office. If you would like to know more please head to www.incomesolutions.com.au/events to register or call (03) 5229 0577.


Source: Client Comm 
Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

Estate Planning and Expecting

I’m six weeks away from having my second child and all of the normal feelings of excitement and nerves are in abundance!

This time round however, I am feeling more comfortable that my children will be brought up the way I want, and be provided for financially, if the worst were to happen. If I were to die, or my husband and I were to die together, we now have a plan which gives us huge peace of mind. We know that our children will have the best guardians they could possibly have, and they will not be left under any financial stress.

As the reality of becoming a mum for the first time two years ago rushed towards me, it gave me that kick up the bum to take some important things out of the ‘too hard basket’ and get sorted. It was only while stocking up on nappies and onesies did I see the importance of having adequate personal insurances. My husband and I were about to become responsible for another human being! Our baby would be totally dependent on us. I quickly organised with a trusted adviser to review our situation and together we went through a process that analysed our position, understood our needs, and put appropriate cover levels in place prior to the arrival of baby Lachlan (just in the nick of time!)

This second time round, I have been a little more organised. I knew I needed to refresh the $30 Post Office will kit my husband and I put in place ten years ago when we got married. Our only dependent then was our beloved Golden Retriever fur baby, Max. He was going to be well taken care of in my or our absence, and our limited super balances would be passed on to each other in the first instance, or the people we wanted if we both passed away (or so we thought).

We still hadn’t changed this will since having Lachlan, so I decided to attend one of the Estate Planning sessions run monthly at our offices by Bronwen Charleson, (Principal Lawyer) or Daniel Black (Senior Lawyer) at Coulter Roache Lawyers—I soon realised that our post office kit was in fact not sufficient and neither were our assumed superannuation arrangements.

Bronwen spoke about various strategies to pass wealth on to intended beneficiaries in the most protected manner. Depending on circumstances this could be a simple plan to a more comprehensive trust that provides asset protection, tax advantages and a plan and statement of wishes around the care of minors. I met with Bronwen not long after the session and had her ‘refresh’ (i.e. completely rewrite) my will and even include and allow for number two!

If you would like to attend an Estate Planning Session, info and registration details can be found on our website and our next free information session is Monday 11th July, 5:30pm at our Geelong office.

As an additional tip, here is a link to an external site which outlines some of the important aspects of Estate Planning.

Erica Fountain
Head of Innovation 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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