The benefits of a testamentary trust vary depending on your circumstances. If you need a clearer explanation or help setting up trusts and your estate planning, contact Vanessa Ash.
Tax benefits for children under 18
Trust income given to kids under 18 is taxed as usual individual rates, with a tax-free threshold for each child for every year. The tax-free threshold is presently sitting at $18,200, which increases with low-income rebates. This amount is much higher than the tax-free threshold of $772 for distributions made to children under family trust deeds, so with multiple children, these savings can be significant. The more years until the child reaches age 18, the more benefits.
Taking advantage of Capital Gains Tax rules
Capital gains can be directed to your beneficiaries for making the most of CGT losses and the five-year averaging rule. Tax on capital gains is ultimately payable on realised assets, which can be decreased by a significant margin where one (or more) of the beneficiaries has a low income the year they are distributed.
Protection from creditors
If a beneficiary is experiencing financial hardship and is nearing, or already, bankrupt at the time of distribution of an estate, the money usually goes directly to creditors, snatching it straight out of the hands of the intended. This can easily occur in an ordinary will. If you use a testamentary trust, this won’t happen, as the beneficiary cannot get the money until the trustee determines it so, meaning assets can be kept within the family, far away from the hands of creditors.
Your kids partners excluded upon breakups
As a parent, you might want to protect your children from their own spouses making a claim against the money or assets in the event that their partnership breaks down. It could seem like tasty pickings for an embittered ex. Your kids’ partners normally have no rights to the trust when it comes to splitting everything in half. It can be used as a resource by the spouse in some cases but the beneficiary has discretion (in the case of a discretionary trust) to deal with the trust assets and make them matrimonial property if the trustee so desires.
Temporary incapacitation protection
If a beneficiary is incapacitated temporarily, a trust allows the assets to be managed by the family or another third party for the benefit of this beneficiary rather than another agency. This keeps the best interests of the beneficiary closer to home.
Insurance proceeds and super payout flexibility
An individual or their estate can be nominated as the beneficiary of superannuation or the proceeds of insurance, when testamentary trusts are used. This allows greater flexibility to maximise tax status of any proceeds by potentially limited distribution to dependants.
Room to move with maximum protection
These types of trusts tend to offer much more flexibility and protection than many other methods. Trusts can be validly created for up to 80 years, therefore benefiting multiple generations. They can also be dissolved any time, with the money and assets going to beneficiaries.
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