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Testamentary Trust Wills
Providing flexibility, asset protection, and tax benefits for your beneficiaries.
What is a Testamentary Trust?
A Testamentary Trust is a trust created under your Will that only comes into effect after your death. It allows assets from your estate to be managed by a Trustee on behalf of nominated beneficiaries. The Trustee has discretion to distribute income and capital to any of the beneficiaries, offering flexibility and control over how your estate is shared.
These trusts are highly customisable and can be designed to suit your family’s specific needs, providing peace of mind that your legacy is protected.
Key benefits of a Testamentary Trust
1. Flexibility for your beneficiaries
- The Trustee can distribute income and capital at any time, in any proportion, to any nominated beneficiary.
- This provides beneficiaries with flexibility and control over when and how they receive their inheritance.
2. Asset protection
Assets held in a Testamentary Trust are not owned directly by the beneficiaries, offering protection from:
- Divorce or relationship breakdown: Assets held in a Testamentary Trust are generally protected from family law property settlements in NSW. While not absolute, courts are less likely to include trust assets in property pool divisions.
- Creditors and bankruptcy: Since the assets belong to the Trust and not the beneficiary personally, they are generally protected from creditors if the beneficiary becomes bankrupt or faces financial difficulties. High-risk professions: Beneficiaries working in professions with potential legal claims (e.g., medical, finance, legal) benefit from this asset protection.
- Will challenges on beneficiary’s death: Because assets remain in the Trust and do not become part of a beneficiary’s personal estate, they are usually protected from family provision claims or challenges after the beneficiary’s death.
3. Protection for vulnerable beneficiaries
- Social security entitlements: Beneficiaries receiving government benefits such as pensions can often maintain their entitlements since they don’t receive lump sums outright but benefit from controlled distributions.
- Spendthrift or at-risk beneficiaries: The Trust can safeguard assets for beneficiaries with addiction or poor financial management by controlling distributions.
- Spouse remarriage: The Trust can protect your intended beneficiaries, such as children, from losing inheritance due to your spouse’s potential remarriage.
4. Tax advantages
- Income generated by the Trust can be distributed tax-effectively among beneficiaries.
- Minors (under 18 years) can receive up to $6,000 in tax-free income annually from the Trust (provided they have no other income).
- The Trustee can allocate income to beneficiaries on lower tax brackets, potentially reducing the overall tax burden.
Who can be a Trustee?
You can appoint anyone you trust, including your Executor, family members, or professional advisors. You can also establish multiple Testamentary Trusts under your Will, each with separate Trustees, providing tailored control over different parts of your estate.
Is a Testamentary Trust right for you?
While Testamentary Trusts offer many benefits, they also involve ongoing costs such as accounting and tax return preparation. Consider the following when deciding if one is suitable:
- The size and complexity of your estate
- The income your estate is expected to generate
- Whether asset protection, beneficiary needs, or tax minimisation apply to your situation
At MP&S Legal Partners, we can help assess if a Testamentary Trust Will fits your circumstances and tailor a solution that protects your wishes and family.
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