Whether your estate is worth $5,000 or $50,000,000, Gamble Law is here to assist you in all aspects of will making.
We have prepared Wills for persons in all walks of life and thoroughly enjoy doing so. We know you don’t make a will every day, so we ensure that all our wills are tailored to your exact needs and explained in a simple manner.
Testamentary Trust Wills
Testamentary Trust Wills have been growing in popularity in recent times as a favourable structure for Will makers to pass their assets to their nominated beneficiaries. The increasing values of property in New South Wales as well as the growing emphasis on superannuation means that people are more aware of how the next generation will deal with an inheritance.
“The benefits of a testamentary trust are so significant that every person making a Will should consider implementing them” (Who wrote this quote?)
What is a Testamentary Trust Will?
A Testamentary Trust Will can be explained using the below diagram.
“A” signalises the death of the Will maker. The “Estate” is administered normally and would include obtaining a grant of Probate and calling in the assets of the estate.
“B” shows the transfer of the assets of the estate to the Testamentary Trust. Instead of the assets being transferred to the beneficiary in their personal capacity the assets are transferred to the Testamentary Trust established by the Will.
From this point, normal trust principles apply. These are as follows:
- There is a Trustee who controls the trust and is responsible for day to day decisions;
- There are Beneficiaries of the trust which includes the Primary Beneficiary and remoter descendants, who can all benefit from the trust;
- Trust property which must be made up of assets of the deceased person’s estate; and
- The Appointor who has the power to choose and remove the Trustees.
One of the most important benefits of a testamentary trust is the asset protection that it provides to the beneficiaries of the will.
There are two circumstances where this is most relevant:
It is a startlingly fact that one in three marriages end in divorce (according to the ABS) and these figures don’t take into ac-+count the breakdown of de facto relationships.
With the heightened risk of relationship breakdowns comes the increased focus on preserving family assets. If a Will maker has a simple will, a beneficiary will receive their inheritance in their personal capacity.
After a few years of marriage, these inherited assets are generally intermingled with the matrimonial assets. If the relationship was to end, the Family Court may make orders regarding the division of property, including those assets that have been inherited. In short, this may mean that your nominated beneficiary’s inheritance could end up in the hands of their spouse.
A Testamentary Trust avoids the above circumstance in that the nominated beneficiary is generally not the legal owner of the assets held by the trust. This means that in the event of the beneficiary going through a relationship breakdown, the Family Court is less likely to make an award in favour of the beneficiary’s spouse in relation to the inherited assets held by the testamentary trust.
The Family Court’s view on a Testamentary Trust is that it is a “financial resource” of a party as opposed to a “divisible asset”. This means that the Testamentary Trust will not form part of the matrimonial pool for division and, more importantly, will remain the property of your nominated beneficiary.
Careful drafting of the Testamentary Trust will ensure protection if these circumstances arise.
The other circumstance where a Testamentary Trust Will has significant benefits is where a beneficiary is in a high risk occupation or has a track record of being incapable of managing their own financial affairs.
Again, if the beneficiary received an inheritance in their own personal capacity, if they were made bankrupt any assets owned would vest in their trustee in bankruptcy.
A Testamentary Trust however is not an asset of the bankrupt beneficiary which means the trustee in bankruptcy has great difficulty deeming the assets of the Testamentary Trust as property of the bankrupt.
A Testamentary Trust allows income from the trust to be distributed in a tax effective manner. As opposed to the income from the trust being distributed solely to your nominated beneficiary, the trust allows the income to be distributed to a wider class of beneficiaries such as your nominated beneficiaries’ children or grandchildren.
The trust also allows any capital gains made by the trust to be split between a number of beneficiaries, including those individuals on the lowest marginal tax rates, therefore reducing the tax payable on investments.
If you have assets that would mean each of your beneficiaries would receive in excess of $350,000, it is something that should be considered by you.
This amount may be even less in circumstances where your child has an addiction, is a spendthrift, has been in and out of unstable relationships or in a high-risk occupation.