As the name implies, these are trusts which only take effect upon the
death of the testator.
Normally, the terms of the trust are set out in the testator's will and
are often established where the testator wishes to provide for their
children who have yet to reach their adulthood or are handicapped.
Testamentary Trusts are an important way of ensuring your children
obtain the maximum potential from your inheritance to them.
Properly drafted Wills can protect children from relationship
You can protect your beneficiaries from business and investment
You can ensure children in their minority are not exposed to penalty
You can properly deal with life insurance payouts and
You can prevent possible capital gains on sale of your primary
residence, and minimize other tax liability.
You can precisely provide for incapacitated beneficiaries and those
otherwise in crisis.
generally speaking, an estate must have
income-generating assets valued in excess of $500,000 for the
taxation benefits to be significant. In determining the size of an
estate the following issues should be considered:
assets do not form part of the Testator's estate as they will pass by
survivorship and not through the Testator's Will;
Testator has nominated a beneficiary under a life insurance policy, the
proceeds will be paid to that person directly and will not form part of
the Testator's estate;
from a superannuation fund do not automatically form part of the
member's estate. The Trustee of the superannuation fund generally has a
discretion whether to pay the benefits to the member's estate or
directly to the member's dependents subject to any binding death
nomination made by the member;
assets that are
already held in a lifetime discretionary trust do not form part
of the Testator's estate.
the cost of establishing a Testamentary
Trust is comparable with the combined cost of establishing a
lifetime discretionary trust and a Will but the more complex the
trust structure, the higher the initial set-up fees (which are not
tax deductible). in addition to the initial set-up fees there will
be ongoing, annual accounting together with other professional (e.g.
financial advice) and compliance fees.
if the Trustee distributes income to
Beneficiaries in order to arrange the most tax effective scenario,
some Beneficiaries may inherit more than the Testator would have
wished simply because they are in a low tax bracket.
complexity and formality of the
structure can be a headache. For example, minutes are required for
each Trustee resolution. If the Trustee is not the primary
Beneficiary, a Beneficiary must ask a Trustee, if e.g. they would
like a large distribution for a major purchase or almost any kind of
unusual event, because they are not controlling the underlying
since changes to the Social Security
rules in 2002 the whole of the assets of a trust can be counted as
belonging to a Beneficiary on a pension or other social security
means tested benefits.
subject to the terms of the trust,
retaining the main residence in a Testamentary Trust may result in a
loss of the CGT exemption. Land Tax consequences would also need to
as with all discretionary structures,
much will depend on the decisions taken by the person in ultimate
control, in this case the Trustee of the Testamentary Trust. This
can be off-putting for certain Testators who prefer certainty over
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appropriate type of trust or trusts for your situation, please
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