While having a traditional Will may meet your needs, will it meet the needs of your beneficiaries?
The beneficiaries of a traditional Will have no choice other than to take their gift in their own name or refuse it. Taking your gift in their own name may cause serious taxation or other issues.
The solution to this problem is easy. Establish a Testamentary Trust.
A Testamentary Trust is simply a trust established in a Will and does not come into existence until the Will maker dies. It creates a simple, optional Testamentary Trust for each beneficiary.
By establishing a Testamentary Trust Will, your beneficiaries will have the flexibility and choice they need to protect and make the most of the gift they receive from you.
By using a Testamentary Trust, your beneficiaries have the potential to –
- Reduce Tax
- allows the beneficiary to distribute the income and realised capital gains to a range of people to gain the best tax outcome
- the income received by minors taxed at normal marginal tax rates rather than the top rate
- Clearly identify an Inheritance
- keeps the inheritance separate from matrimonial property. In the situation of a Family Law property dispute, an adult child’s inheritance does not go to that child’s former spouse
- Protect Assets
- limiting access to the inheritance by creditors in a situation where the beneficiary could be sued
- limiting the assets available to be used to pay creditors in the event of bankruptcy of the beneficiary
If your beneficiaries are of age and do not wish to continue with the Testamentary Trust, they can choose to wind it up. They also have full control of their own trusts should they wish to. They can control –
- Who gets the assets
- Who gets the income
- How to invest the trust funds, and
- How long the trust is needed
They can give everything to themselves or pass control to someone else at any time if they want to.
In the case of minor children, you decide when they gain control of their trust and up until then, your executor is in control. When they become of age, they then take control of their own trust.
The trustee can be anyone you nominate, including the executors of your Will, your spouse or partner or your children. The trustee has effective control of the trust, so it is important this is someone you trust to act in the best interests of your beneficiaries.
Before establishing a Testamentary Trust Will, you should be aware that there will be ongoing maintenance costs such as accountancy fees for preparation of income tax returns. You should also consider whether the income generated by your estate would be sufficient to warrant a testamentary trust, or whether there are special needs such as a beneficiary with an intellectual impairment.
For more information on whether a Testamentary Trust Will is suitable for you, contact the team at Evolution Legal.