Current as of July 2014
A “testamentary trust” is a trust created in your will, which only comes into existence upon your death.
Your will needs to clearly summarise the rules of the” testamentary trust” that you are creating and for this reason it is imperative that a solicitor be used to draft your will.
Testamentary trusts created by wills can be very powerful estate planning tools. Following are some of the benefits and points to note.
- Taxation: the beneficiaries (especially children and/or grandchildren) will be subject to cheaper tax rates. It is possible for each of your under age children and/or grandchildren to earn $18,200 p.a. tax free from investments by the trust.
- Family Law: a “testamentary trust” is a discretionary trust. This means the trustee of the trust has a discretion as to which beneficiary(s) should receive the income of the trust each year. The beneficiary(s) does not have any legal title to the assets of the trust, nor its income, and therefore those funds will not form part of the assets of their marriage under the Family Law Act, in the event of divorce.
- Bankruptcy: as the beneficiary(s) has no interest in the assets of the trust, the assets are protected from the beneficiary’s Trustee in Bankruptcy.
- Cost of set up and administration: a “testamentary trust” only comes into existence upon your death. There are no stamp duty consequences nor is there any need to administer the trust during your lifetime. However, care needs to be taken in creating the “testamentary trust” and its rules, so that your trustee (normally your executor) and your professional advisor (s) can administer the trust easily (to keep the costs to a minimum).
- Trustee: it is important to carefully consider who will be the trustee(s). It is also possible to allow the resignation, retirement and appointment of trustees, as a trust may remain in existence for up to 80 years.
- Assets: it is also important to carefully consider which assets should fall into the “testamentary trust”.
Don’t hesitate to contact us to discuss the tax aspects of the above. Please liaise with your solicitor for preparation of a will that incorporates a testamentary trust.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.