Under a standard Will, the Will-maker generally leaves their estate directly to individuals, that is, usually their spouse (if their spouse survives them) and then ultimately to their children.  However, if after the Will-maker’s estate is administered and those individuals subsequently divorce or suffer financial misfortune then the Will-maker’s hard earned assets may be at risk.

A Testamentary Trust is created by a Will and only comes into effect on the death of the Will-maker.  Preparing a Will which incorporates Testamentary Trusts ensures that:

  • the Will-maker’s hard earned assets are protected from their children’s misadventures after the Will-maker passes away, such as divorce or bankruptcy;
  • income may be distributed to a broader range of beneficiaries;
  • the beneficiaries can utilise the taxation advantages available which makes them an effective estate planning tool.

Benefits of a Testamentary Trust?

There are two main advantages for preparing a Will which incorporates Testamentary Trusts – Asset Protection and Taxation Benefits.

Asset Protection

Well drafted Wills incorporating Testamentary Trusts can:

  • ensure that assets held in the trust are separate from assets personally owned by the beneficiaries.  Therefore, in the event of a relationship breakdown, the assets held in the Testamentary Trust earmarked for the Will-maker’s children may be held separate from the assets of the relationship.  While asset protection cannot be guaranteed there is a higher level of protection than that provided to absolute gifts made by way of a standard Will.
  • be structured so to limit the control a certain beneficiary has over the asset which can protect against irresponsible use or early sale of the asset while allowing the beneficiaries to enjoy the use or income of the asset.
  • help to protect the Will-maker’s estate from creditors of beneficiaries if a beneficiary becomes bankrupt due to business misadventures after the Will-maker passes away.

Tax Benefits

Testamentary Trusts allow the beneficiaries to take advantage of the available income tax benefits by providing that:

  • all beneficiaries including minor children receive the tax free threshold;
  • distributions can be made from the trust, not just to the primary beneficiary but to other potential beneficiaries (including perhaps primary beneficiaries’ spouse, child or sibling).  This may be attractive as it allows potential beneficiaries to take advantage of lower income tax bracket thresholds that potential beneficiaries may have.

A properly prepared estate plan is essential to ensure that your hard earned assets are protected for your family members, both during your lifetime and after you pass away.  If you would like further information and assistance with the preparation of your estate plan, please do not hesitate to contact one of our local experts today on 07 4963 2000 or via our online contact form.

Catherine Da Silva, Solicitor, Wallace & Wallace Lawyers Mackay

Catherine Da Silva
Business & Property

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