Do you worry about what will happen to your family when you pass away?

If so, a ‘testamentary trust’ may be the answer. It is established as an outcome of a will and only comes into force in the event of your death. The major benefits of such a trust are taxation advantages and protection of the assets where children are involved, or where you may be concerned about the beneficiaries’ management of their inheritance. A testamentary trust means you know your children and grandchildren can have access to a regular income, along with capital (if appropriate).

The trustee can be one or more of the beneficiaries, a legal professional, a trustee company or other person.

There is no limit to the number of testamentary trusts that may be established. You can create one to cover the whole family or a separate one for each beneficiary.

Taxation

Generally, children under 18 are subject to penalty rates of tax on unearned income. However, where their income is received from a deceased estate normal tax rates apply, including the low-income rebate, if applicable.

Using a testamentary trust means that all income from the estate, including capital gains and franked dividends, may be distributed amongst the beneficiaries in the most tax effective manner.

Protection of Assets

A testamentary trust, if structured correctly, may also prevent beneficiaries from having unlimited access to the capital from the estate. This may be of particular benefit where

• you have a beneficiary who is disabled and unable to manage their own affairs;
• you believe a beneficiary may be financially irresponsible or you wish to protect their inheritance in the event of marriage breakdown;
• you do not trust your spouse or ex-spouse to manage the estate in the best interests of your children;
• you wish to ensure your children receive a defined part of the estate in the event of a surviving spouse remarrying.

The terms of the trust are set out in your will and it is therefore important to have professional legal advice in the preparation of your will and to discuss your needs fully with your financial adviser. stamentary trust, if structured correctly, may also prevent beneficiaries from having unlimited access to the capital from the estate.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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1. Who should you appoint as your beneficiaries?

While you can leave your estate to pretty much anyone you like, you do need to be careful. Challenges against a Will often occur when people feel they haven’t been provided for fairly. If you think your Will is likely to be challenged, you may want to leave a letter of wishes. This is an additional document explaining why the Will has been drafted in the manner chosen and can be referred to when a claim is being defended.

2. What assets do you want your beneficiaries to receive?

While some people feel the need to specifically gift every asset they own, a lengthy list of gifts is usually not encouraged. Assets held at the time of making your Will (and their value) may differ significantly from the assets owned at the time of death. It can therefore be a good idea to only gift a small number of specific assets in your Will and assign a percentage of the remainder of the estate to each beneficiary.

3. Who should you appoint as your executor?

Your executor is responsible for a range of tasks, such as locating the Will, organising the funeral, arranging probate, collecting the assets, repaying debts and distributing the assets. When choosing your executor, make sure you select someone who is trustworthy, in tune with your objectives, and capable of performing this very important role.

While some people appoint a family member as their executor, a Trustee company can be a good alternative – particularly if your Estate is complicated and/or suitable friends or family are not available. A Trustee company provides expert administration and legal services and charges a fee, typically paid from your Estate, after your death.

4. Should you establish a testamentary trust?

A testamentary trust is a special type of trust that comes into effect upon your death, if you have included specific provisions in your Will. Because the Trustee owns and controls the assets, your estate can be protected from a number of potential risks and your beneficiaries can be provided for in a tax-effective manner.

Naturally everyone’s situation is different and we recommend you speak to one of our Financial Adviser's to find out more.

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