Estate Planning: Testamentary Trust Wills

Article by Townsville Lawyer, Ivan Baxter, Director of O’Shea Dyer Solicitors.

June 2023

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When should I have a Testamentary Trust Will?

If you have assets (excluding superannuation) in excess of $1 million dollars, you should consider having a Will that contains a Testamentary Trust.

Testamentary Trusts provide many advantages and the opportunity to maximise the potential tax efficiencies for future generations of beneficiaries, which will enhance and protect your legacy.

What is a Testamentary Trust Will?

A Testamentary Trust is a trust created within your Will where you appoint trustees and set out the terms of the trust in your Will.

It is a trust that comes into effect after your death.

It is designed to give the trustees great flexibility and discretion to decide how and when to distribute assets/money in your estate, to your beneficiaries.

The Advantage of Flexibility

A testamentary discretionary trust is established by the terms of your will and gives flexibility as to how and when your beneficiaries receive their benefits from your estate, which protects the beneficiaries’ entitlements and minimises any applicable taxation consequences for them.

This is possible because, under a testamentary trust, the assets of your estate will be held by trustees for the beneficiaries, not by the beneficiaries. This applies despite the fact that a trustee can be – and usually is – also a beneficiary of the trust. The trustees work together to control the inheritance without the assets being at any risk.

The Advantage of Asset Protection

Usually, people leave the majority of their estate to their children as the main beneficiaries. There are many situations where you may not want your child, or adult child, to receive a large sum of money as a lump sum. The trustee is able to use their discretion to decide when to distribute money in your estate. For example, you may not want money to go to a beneficiary immediately on your death because -

• They may not be old enough to manage a large amount of money.
• They may have special needs and are not able to manage a large sum of money.
• They may have an addiction, so it would be better to give money in instalments, a little at a time, over time, and for certain purposes, rather than give a large lump sum as one payment.
• They may have a business that borders on bankruptcy.
• They may have serious marriage/relationship difficulties and you wish to protect estate money from being passed to their ‘ex’.
• They may be at risk of being sued.

The trust structure protects the assets from any claims against the beneficiaries. Where necessary – when the appointed trustee is not the beneficiary – it also protects the trust’s assets from misuse by the beneficiaries themselves.

If a beneficiary faces bankruptcy, an asset held for that beneficiary in a testamentary discretionary trust will not be available to satisfy the beneficiary’s creditors.

Likewise, assets held in a testamentary discretionary trust are not part of the pool of assets available to be divided up in family law proceedings, in the event of a beneficiary becoming separated from a spouse or partner.

This protection extends to claims against the estates of your beneficiaries. If the assets to which they are entitled under your will are held in trust, then those assets do not form part of their deceased estates when they die and are not available to any claimant on their estate.

Testamentary trusts can also effectively protect beneficiaries from themselves. For example, if a beneficiary has an addiction, a bequest could be left in a trust which allows them to receive appropriate maintenance and treatment but does not allow them to access the capital.

The Advantage of Tax Effectiveness

If you have a substantial estate, it will be in the interests of the beneficiaries to receive money in the most tax efficient way.

Testamentary trusts can be very tax effective. Income, capital gains and franked dividends from shares can be distributed among all beneficiaries, each year in the most tax-efficient way. For example, income can be distributed to a minor beneficiary who has no other income, rather than to their parent who is otherwise earning a high income and paying tax at the top marginal rate.

The trustees are able to distribute any income, capital gains and dividends from your estate to your beneficiaries each year in the most tax efficient way.

How much does a Testamentary Trust Will Cost?

A Testamentary Trust Will is designed to be specific to your situation and can be quite complex. It takes substantially longer to prepare than a standard Will and costs more.

Testamentary Trust Wills for Singles start at $2200 (inc gst).

We include an Enduring Power of Attorney document for free (usually $220).

Superannuation Binding Death Benefit Nominations are $165 (inc gst) per fund.

Testamentary Trust Wills for Couples start at $3300 (inc gst).

We include 2 Enduring Power of Attorney documents for free (usually $220 each). Superannuation Binding Death Benefit Nominations are $165 (inc gst) per fund.

What will be discussed with my lawyer when preparing a Testamentary Trust Will?

Your lawyer will ask about and advise where required:

• Details about you and your family – your full name, contact details, and proof of identification. Your lawyer will also need an understanding of your assets and liabilities.
• Details about your wishes – who are your beneficiaries, who are your children and loved ones, do you have any specific gifts or personal items you wish to leave to specific people or donations?
• Executors – who you wish to appoint as executor/s in your Will.
• Trustees – who are to be the trustees and principals of the trusts to be created in the Will (which come into effect on your death)?
• Options about how assets might be distributed in order to ensure everyone is treated fairly and to avoid litigation after your death.

What is an Executor?

Your executor is the person who will administer your estate and carry out your wishes after you die. They may have to collect assets, pay out debts, arrange your funeral, distribute your estate according to your Will and if necessary, take or defend legal action on behalf of your estate.

You may appoint one primary executor and one substitute executor, or you can appoint more than one primary executor to act jointly if you prefer. They should be people who are able to work together.

What are Trustees?

See our Article: Trustees and Principals of Testamentary Trust: Who What When Why

Where to from here?

Ivan Baxter is a lawyer with over 36 years of experience. He is the Director of OSheaDyer Solicitors Townsville. Ivan has experience in many areas of law including Wills and Estates though he now practices almost exclusively in Litigation managing Compensation Claims.

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We always recommend that people see an experienced lawyer when legal issues arise. Experience matters when you are seeking Estate advice. Everyone’s situation is unique. Make sure you obtain advice that is tailored to your situation.

O’Shea Dyer Solicitors have experienced Estate lawyers who are available to assist with Estate Planning and Estate Administration.

Call O’SheaDyer on 47 725 155. We would love to help.

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