When writing a Will, you may consider creating a testamentary trust to protect your assets, reduce the tax paid by beneficiaries, or maintain flexibility and control. There are many benefits of having a testamentary trust in your Will.
Including a testamentary trust within your Will may increase your control over the distribution of your estate. They allow the trustees of each trust to decide which of the nominated beneficiaries may receive the benefits of the distributions from that trust for any given period.
It’s important to understand the pros and cons when it comes to drafting your Will in a way that best suits your intentions. In this article, we go through the four benefits that having a testamentary trust could have for your future.
1. Flexibility
Testamentary trusts allow for greater flexibility to suit your particular circumstances. This can include former and current spouses, de-facto partners, or children of former spouses.
The trustee can decide the appropriate amounts to distribute from the testamentary trust to any of the beneficiaries.
Your Will can also allow the testamentary trust to be wound up at a certain point.
If a Will does not correctly incorporate a testamentary trust, there may be complications between family members after you pass.
2. Asset protection
A testamentary trust is ideal for protecting assets from going to those who were not intended to benefit from the estate.
Testamentary trusts are also beneficial for vulnerable beneficiaries. This may include people with intellectual disabilities, illnesses, addiction problems or vulnerabilities that could result in the dissipation of an inheritance.
You can read more about testamentary trusts and special disability trusts here.
3. Tax planning
Depending on the nominated beneficiaries’ circumstances, a testamentary trust may assist them with reducing tax liability.
As inheritances will constitute a capital gain to a beneficiary, tax is liable to be paid on a beneficiary’s entitlements under a Will when they receive it. A beneficiary may be given control over the distribution of income from the trust by being appointed as a trustee.
Income can also be split across multiple beneficiaries to minimise tax liabilities.
4. Estate planning
Compared to a simple Will, a testamentary trust allows beneficiaries to take more control over assets against third parties.
As the trustee holds the title to the trust’s assets, this allows trusts to protect assets from court proceedings, bankruptcy, or legal action.
What else should you consider?
Before establishing a testamentary trust, it’s important to decide whether the level of your assets warrant one.
Testamentary trusts can only be created with estate assets. If most of your assets are owned jointly or by a family trust, they are unable to form part of your estate, and therefore your testamentary trust.
Always seek legal advice
A trust is a complex structure which requires effective management. If you are considering having a testamentary trust in your Will, seeking legal advice will ensure it is properly structured.
A discussion with your lawyer will ensure that your family circumstances and objectives are considered. This will ensure you are making the best informed decision for your situation.
Get in touch with us
The Cameron Rogers team offers guidance for each individual circumstance so you can properly and efficiently deal with your estate matter.
Reach out to us for an obligation free consultation now on 07 5445 1213 or book a consultation.
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