Including a trust in your Will is increasingly common and is often recommended by financial advisors. The benefits can including legitimate tax minimisation for beneficiaries, asset protection, and in some cases as a means of preventing assets being wasted - for instance by a spendthrift child or grandchild.
So what is a Testamentary Trust?
In short it is a legal term used to describe a trust that is created under a Will.
Why are they becoming popular?
There are many benefits that can flow from testamentary trusts. The major benefit being the potential to protect assets and to reduce tax paid by the beneficiaries from income earned from their inheritance. There is also a greater level of control over the distribution of assets to beneficiaries.
The main benefits of Testamentary Trusts are:
Capital Gains Tax
Assets owned by the deceased that would have been subject to Capital Gains Tax (CGT) had the deceased sold them before their death, can become an asset of the testamentary trust with no CGT liability for the beneficiaries.
Income Tax Assessment
Income can be distributed from a testamentary trust to infant beneficiaries and taxed in those children’s hands at adult marginal tax rates.
Flexibility to the Trustee
The trustee of the testamentary trust can buy and sell the underlying assets of the trust to grow the value of the trust without losing any tax advantage.
Protection of the assets
The testamentary trust provides for the assets of your estate to be held in trust. It may provide protection against creditors of the beneficiaries who may want to recover from the trust assets any amount owing to them by a beneficiary.
Testamentary trusts are very useful in estate planning. The flexibility that they provide can help protect your assets. However, it requires thought and planning.
If you would like our assistance in making a Tasmanian Will or to discuss testamentary trusts in greater detail, please contact us on 03 6332 9353.
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