Benefits of WILLS with TESTAMENTARY TRUSTS

A testamentary trust (TT) is a trust that is created by a will and comes into effect upon the death of the will maker. TTs offer several benefits, particularly in the context of estate planning as follows:

1. Tax Advantages

Income Splitting: Trusts are not taxed as an entity if income is distributed to beneficiaries. Income can therefore be split among beneficiaries, including children who are taxed at adult rates taking advantage of a tax free threshold currently at $18,200 per annum per person. Capital Gains Tax (CGT) Deferral: The transfer of assets into a TT does not trigger a CGT event. This means that CGT can be deferred until the assets are eventually sold by the trust or the beneficiaries.

2. Asset Protection

Protection from Creditors: Assets held in a TT are generally protected from the creditors of the beneficiaries. This can be particularly beneficial if a beneficiary is facing financial difficulties or bankruptcy. Family Law Considerations: Assets in a TT may be better protected in the event of a beneficiary’s divorce or separation, as they are not considered part of the beneficiary’s personal assets.

3. Control Over Asset Distribution

Flexibility: The will maker can set specific terms and conditions for how and when the trust assets are to be distributed. This can include provisions for education, health, and maintenance of beneficiaries. Long-Term Management: TTs can provide for the long-term management of assets, ensuring that they are preserved and used in accordance with the will maker’s wishes.

4. Provision for Vulnerable Beneficiaries

Special Needs: TTs can be tailored to provide for beneficiaries with special needs, ensuring that they receive the necessary care and support without affecting their eligibility for government benefits. Spendthrift Beneficiaries: For beneficiaries who may not be financially responsible, a TT can provide a structured way to manage and distribute their inheritance.

5. Minimising Family Disputes

Clear Instructions: By setting out clear instructions in the will, a TT can help to minimise disputes among beneficiaries regarding the distribution of the estate. Independent Trustee: Appointing an independent trustee can further reduce the potential for conflict, as the trustee can manage the trust assets impartially and in accordance with the will maker’s wishes.

6. Estate Planning Flexibility

Multiple Trusts: A will can establish multiple TTs, each tailored to the needs of different beneficiaries. This allows for a customised approach to estate planning. Adaptability: TTs can be designed to adapt to changing circumstances, such as the birth of new beneficiaries or changes in the financial situation of existing beneficiaries.

7. Preservation of Wealth

Intergenerational Wealth Transfer: TTs can help to preserve wealth for future generations by providing a structured way to manage and distribute assets over time. Investment Management: The trustee can manage the trust assets professionally, potentially enhancing the growth and preservation of the estate.