What is a testamentary trust and do I need one?
The short answer is it is a trust set up in a will. It changes your will from being about 6 pages to over 20 pages. It increases the cost of drafting your will, and typically increases the costs of administering your estate.
So is it worth it? For many people, the answer is a definite yes!
A TESTAMENTARY TRUST HAS MANY BENEFITS, THE MAIN ONES BEING:
- Providing maximum flexibility for the distribution of capital and income.
- It offers tax benefits to your beneficiaries.
- Providing protection to your beneficiaries from third parties, such as creditors and ex-partners.
FLEXIBILITY
Even though you have gone to the effort and expense of setting up a trust, participation in the trust structure is optional for beneficiaries over a certain age. They may choose to disregard the option and never use the trust: they can take their share of the estate absolutely.
ASSET PROTECTION
Whether from divorce, waste or other disasters. Even though this trust is not bulletproof, assets held in trust are afforded some protection from loss simply by virtue of being trust assets. One aim of this will is to enhance and enlarge this asset protection for beneficiaries against loss through divorce, bankruptcy or other disastrous changes in circumstances.
TAX EFFECTIVENESS
Testamentary trusts enable beneficiaries to distribute income and/or capital among a wide range of potential beneficiaries, and this discretionary power to allocate income can result in considerable, and continuing, annual tax savings following your death. The existence of the power can produce a tax advantage which would not be present if the trust had been created during the lifetime of the person setting up the trust. Distributions from other trusts are much less generously treated by the tax law than distributions from a testamentary trust.
DO I NEED A TESTAMENTARY TRUST IN MY WILL?
This will depend on your circumstances. Despite all these benefits, a testamentary trust is not always the best solution. With the right advice, you can make the right decision based on your circumstances. Contact us on (02) 9450-2985 to make an appointment.
