In undertaking an estate planning review and discussion with you we may discover factors involving family relationships, major asset holdings, beneficiaries with special needs, family owned enterprises or other factors that necessitate estate planning documents that are beyond what a standard Will can accommodate.
Most often this will result in the creation of a Testamentary Trust Will which provides a wide range of flexibility and detailed testamentary instructions to ensure you wishes are properly carried out, all beneficiaries needs are taken care of and financial costs and tax burdens are minimised.
What are testamentary trusts?
A Testamentary Trust is similar to a standard family or discretionary trust except that it is only established in someone’s Will – it comes into existence only when that person dies.
Where funds are available in an estate to create a Testamentary Trust they can achieve far more than the direct gifts made under a standard will.
These trusts have significant benefits including asset protection, tax effective estate planning and creating a family legacy.
A Testamentary Trust will be of particular interest to those with asset protection concerns or who may have personal liabilities. Business owners and other professionals, or those in high risk occupations, will often prefer not to receive inherited assets in their own names.
A Testamentary Trust can also protect assets from matrimonial breakdown, and can have income splitting and tax advantages for beneficiaries.
A Will can establish more than one Testamentary Trust and the flexibility of a trust arrangement can give effect to a wide variety of specific wishes that the Will-maker may have.
How does a testamentary trust work?
Rather than giving assets and money in your Will directly to the beneficiaries, you can give part or all of your assets to a trust created for the beneficiaries.
The creation and operation of a Testamentary Trust is an incredibly varied and flexible estate planning tool which, when created to match each individual’s circumstances, can provide benefits to the beneficiaries and future generations for many years.
Control of the trust can be given directly to the beneficiaries or to another person, or group of people, if the beneficiary is young or has issues around the management of money.
The flexibility provided by a TestamentaryTrust in how funds are distributed can provide valuable, tax effective options for the beneficiary, who might otherwise find earnings from their inheritance taxed at the top of their personal tax rate.
Where the trust controls real property assets there is additional flexibility in transferring control of that property to successive generations without stamp duty or capital gains tax costs.
Not all assets are suitable for placing into a testamentary trust, however. Superannuation, for example, will be taxed at a lower rate if paid directly to a spouse.
Who controls the assets in a testamentary trust?
Whoever is named in the Will as the trustee controls the trust assets. This could be either the beneficiaries themselves or another person.
Options are also available to transfer trustee control at a later date if a particular beneficiary does not initially have the ability to manage their trust well.
A Testamentary Trust can be as flexible or as fixed as you like. The trustee can be given full discretion or no discretion as to who should receive the income and capital from the trust and when they should receive it. Individual circumstances will determine the most appropriate terms of the trust.
If you would like more information about incorporating provisions for testamentary trusts in your will please contact Clifford Gouldson Lawyers.