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- Thinking Ahead Issue 4
- Tax
TAKING CARE OF THOSE LEFT BEHIND
Protecting your assets and minimising tax through a testamentary trust could save your loved ones heartache as well as money.
Greg Lay, Partner, Bentleys Melbourne
A testamentary trust is a trust created by a will. But instead of the assets of a deceased estate being distributed to the beneficiaries, assets are retained in a trust for the benefit of the beneficiaries.
How does a testamentary trust protect your assets?
Testamentary trusts are not owned by the
beneficiaries and therefore can offer a level
of protection from the beneficiaries’ creditors
or, in the event of a marital breakdown, their
spouse.
What are the tax benefits of a testamentary trust?
The assets of a testamentary trust allow the taxable income of the estate to be taxed
more effectively in three ways.
| 1 | Income may be distributed to those beneficiaries who pay the lower rate of tax |
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| 2 | Adult tax rates are applied to children under 18 years of age, but children are not taxed at the penalty tax rates that normally apply to unearned income over $416. This applies to all beneficiaries of the testamentary trust and therefore can include the grandchildren of the deceased. |
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| 3 | As the assets of the testamentary trust are not assets of the beneficiaries, they do not form part of the assets test for eligibility for Government assistance |
Who has control over the assets of the testamentary trust?
The control of the testamentary trust lies with the trustee of the testamentary trust
as set out in the will. The trustee can be any person, group of people, or company.
Often the surviving spouse is the trustee until death and then control is passed to
the children.
Do all assets of the estate need to be transferred to the testamentary trust?
No. Any specific assets can be distributed
to any beneficiary, rather than being
passed to the testamentary trust. Usually
the will is structured so that the personal
belongings and household effects of the
deceased are passed to the surviving
spouse or children, as there is no benefit in
transferring them to the testamentary trust.
Often we leave the careful drafting of
our wills until we believe every other
issue has been dealt with. This is not
a recommended strategy. It is more
important to have a current will to deal
with the situation as it is now and to
provide for the future (such as the use of a
testamentary trust) – if need be, your will
can always be amended at a later time.
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Greg Lay Business Advisory Services +61 3 9274 0600 |
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