Testamentary Trust Wills & the top 4 reasons why this structure may be right for you

Home Testamentary Trust Wills & the top 4 reasons why this structure may be right for you

A Testamentary Trust Will (“TTW”) leaves your inheritance to your beneficiaries in a trust structure. A TTW can establish one or multiple trusts and divides your estate to those trusts. Your inheritance passes to your nominated beneficiaries within the trust structure you have created. 

Before we get to the top 4 advantages of a TTW, it is important to understand the three roles of a trust:

  1. Trustee – they make the day-to-day decisions of the trust, including who receives distributions 
  2. Appointor – they have the power to remove & appoint a Trustee (they are the true controllers of the trust and have the ultimate power)
  3. Beneficiaries – the named beneficiaries are entitled to be considered for a distribution but do not have a fixed entitlement to the inheritance (except upon the termination of the trust).

The top 4 advantages of establishing a TTW:

1. Give the gift of asset protection:

From Creditors: Assets held in a trust do not form part of your bankrupt estate and so are protected from future creditors of your beneficiary/ies. 

From Divorce/Separation: The family law court will take into consideration assets that are controlled by the parties separating, and if the person is 100% in control of such assets then those assets will come under the court’s scrutiny. This means that those assets will be exposed in a property settlement. 

One way you can protect your inheritance from the family law court is by appointing co-appointors or an independent appointor to give the ultimate protection.  

2. Protect vulnerable beneficiaries

If your loved ones are exposed to issues that leave them vulnerable (ie shopping addictions, age, disability or other addictions) then you may want to have someone else in charge to make sure their inheritance is not wasted. By appointing an independent trustee and appointor who you trust, you are able to trust that the decisions made will be in the best interests of the beneficiaries that may not be able to help themselves. 

3. Tax minimisation & flexibility (can stream income to class of B to lower income tax payable (and special rates of TTW)

A trust has capital (the initial inheritance value) and income (amount earned from the initial value) and capital gain (any growth from the initial value). The trust should distribute income and any capital gain to the beneficiaries by 30 June each year so that tax is not payable at the top tax rate by the trustee. 

If the trustee distributes the income and capital gain (if any) to the beneficiaries they will pay tax in their personal name at their personal rate. A trust set up in a Will is special in that lower tax rates apply compared to a trust established outside a will, and children are treated as adults for tax purposes meaning that if a beneficiary is under 18 they are taxed at adult rates and can access the tax free threshold of an adult (as opposed to being taxed at the penalty rates for children).  

5. Family Wealth & Future Generations

You want your bloodline to inherit your estate. By setting up a trust (which can have a lifespan of up to 80 years) in your will you are able to name your bloodline as beneficiaries of the trust. This gives you peace of mind that your future generations will benefit from the wealth you are creating today. 

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