What is a Testamentary Trust Will?
A testamentary trust is a trust created by a Will. The advantages of a testamentary trust include:
Asset protection from creditors: through careful drafting of a discretionary entitlement (under which beneficiaries are awarded income from the trust) a testamentary trust can provide invaluable asset protection to your beneficiaries in the event there is an estate contest by individuals or business creditors.
Income streaming: the trustee of a testamentary trust is afforded the discretion to distribute different classes of income. This allows the trustee to make decisions, like which beneficiaries are to benefit from particular types of income, such as franked dividends, unfranked dividends, interest income, tax capital gains and non-taxable capital gains.
Family law protection: the ramifications of a family law separation are a threat to your estate planning. The terms of a testamentary trust can protect an inheritance, in the event of a family law crisis.
Income protection and social security: a testamentary trust can ensure continuity of social security benefits for beneficiaries who received financial aid. Ordinarily, they would be ineligible for such support if the receipt of valuable estate assets excludes them from social security thresholds.
Tax benefits for minor beneficiaries: minors who are covered by a testamentary trust enjoy a full tax free threshold up to a certain amount until the trust comes into effect.
How to Decide Whether a Testamentary Trust is Right for You
Testamentary Trusts are not the ‘right fit’ for everyone, per se. We suggest that clients ask themselves the following questions, when deciding whether a Testamentary Trust Will is right for them:
What have I got? the prime candidate for a Testamentary Trust Will is someone with a need for asset protection, which is generally an estate in the sum of at least $350,000. Regard needs to be had for the compliance obligation of a testamentary trust, like lodging annual tax returns.
How are my assets held? testamentary trust can only provide for/distribute assets held in your personal name.
Who do I want to benefit from my estate? The following types of beneficiaries are well-suited to Testamentary Trust Wills
Beneficiaries under 18 years of age;
Beneficiaries at risk of economic, social, physical or emotional burden;
Beneficiaries who will likely be pursued by creditors or legal plaintiffs who seek to gain from your estate; or
A spouse who is likely to remarry in the event of your death.
Ultimately, estate planning is most effective when tailored to the needs of the individual, and it is critical for you to obtain the advice of lawyers and financial advisors, to determine whether a Testamentary Trust Will is right for you.