RMB Articles

Testamentary Trust Wills Work Well

Posted 16-03-2017
Written by admin 101

A Testamentary Trust is a trust created in your Will that comes into existence upon your death. You can create numerous trusts in your Will, for example for the benefit for each of your children. You can also appoint them as the trustees, meaning they have discretion as to who will receive the income and capital of the trust’s assets.

Testamentary Trust Wills allow income to be split between beneficiaries' family members, because an income beneficiary of a trust is treated as a normal taxpayer under the Income Tax Assessment Act.

For example, if you left the whole of your estate under a regular Will to your child who was in the top tax bracket and they invested their inheritance in their own name, there would be significant tax to be paid each year.

However, under a Testamentary Trust Will, the inheritance could be invested into the trust and the income distributed equally among non-tax paying beneficiaries of the trust (such as infant children or non-working spouses). Similarly, Testamentary Trust Wills can be used to distribute capital gains triggered by the disposal of investment properties or share portfolios.

With the complexities of taxation regulations, it is important to seek the advice of an accountant or financial planner about dealing with your assets under your Will.

Testamentary Trust Wills also help with asset protection. If you wish to leave part of your estate to a beneficiary who runs their own business or is engaged in a particular profession, you may consider whether a Testamentary Trust Will would be appropriate to protect that inheritance from creditors or claimants if they were sued.

Likewise, the Family Court has the power to determine the distribution of assets between parties of a breakdown to a marriage. Any inheritance received directly under a simple Will can be treated as part of the assets acquired in the course of the marriage and therefore be subject to a property order in relationship breakdown proceedings.

On the other hand, if the inheritance is received in a Testamentary Trust Will, if properly drafted, the inheritance may not form part of the assets available for the Family Court to distribute.

Is your will up to date or do you have a question about Testamentary Trust Wills? You can contact us. We'll be able to help you via a quick phone call, ask us a question via email or even chatting with you online.