A testamentary trust is a trust that is set up within a will – it sounds simple, but a trust can provide many advantages, such as tax benefits and protection of assets for your beneficiaries from third parties.  Your will creates a trust and names a trustee, who will then manage the assets held in trust for the benefit of the beneficiaries named in the will after your death. The trustee has the responsibility of managing the trust assets and ensuring that the beneficiaries receive their designated share of the assets as specified in the will.

A TESTAMENTARY DISCRETIONARY 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. Assets held in a testamentary trust can be distributed to beneficiaries in a tax-efficient manner, which can help to minimise the amount of taxes that are owed.
• Allows for greater control over the distribution of assets after a person’s death. For example, if a person has minor children or a beneficiary who is not yet ready to handle their inheritance, a testamentary trust can be created to hold those assets until the beneficiary reaches a certain age or other milestone.
• Providing protection to your beneficiaries from third parties, such as creditors and ex-partners.

TAX EFFECTIVENESS

When a will contains testamentary trusts, assets can be transferred to the trust after the death of the person who made the will.  The main reason people use testamentary discretionary trusts is to enable trustees to distribute income and/or capital among a wide range of potential beneficiaries.  This discretionary power to allocate income can result in considerable, and continuing, annual tax savings following your death. 

Distributions from other trusts are much less generously treated by Australian Tax law than distributions from a testamentary trust.  A good breakdown of this can be found at https://bnrpartners.com.au/project/taxation-of-testamentary-trusts/

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.

OTHER ESTATE PLANNING

In addition to a will, we also recommend two other documents be prepared at the same time – powers of attorney and enduring guardianships . These documents allow other people to make decisions for you in the event you are unable to. Generally, the cost of preparing testamentary trust wills, powers of attorney and enduring guardianship’s for a couple is $3300+ GST. Not only can we assist you in preparing legal documents, but we can also:

• Write a will that maximises the inheritance for your family
• Advise you in regard to choosing executors and guardians
• Minimise the chance that your will is contested and subject to litigation
• Safely store your will and other important legal documents
• Advise you in regard to estate and probate laws