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Why do I need a Will with Tes­ta­men­tary Trusts?


Advan­tages in nut shell

Hav­ing a tes­ta­men­tary trust in your will:

  • Can have asset pro­tec­tion ben­e­fits for your ben­e­fi­cia­ries, for instance, by pro­tect­ing from loss caused by bank­rupt­cy and in some cas­es, divorce.
  • Pro­vides cap­i­tal gains and income tax efficiencies.
  • Is pru­dent where a ben­e­fi­cia­ry to your will is either inca­pable of man­ag­ing their own affairs or vul­ner­a­ble to exploitation.

A tes­ta­men­tary trust is a trust that is estab­lished under a will. There are three major ben­e­fits which flow from util­is­ing a tes­ta­men­tary trust in your will:

  1. Abil­i­ty to split income;
  2. Asset pro­tec­tion ben­e­fits; and
  3. Oth­er pro­tec­tive benefits.

1. Abil­i­ty to split income

If a ben­e­fi­cia­ry receives their inher­i­tance in their per­son­al name, they are taxed on any income and cap­i­tal gains acquired from the invest­ment of their inher­i­tance at their per­son­al mar­gin­al tax rate.

One major advan­tage of a tes­ta­men­tary trust is that income dis­trib­uted to a bene?ciary under 18 years of age is taxed at adult rates, rather than the penal­ty rates that apply should income be received by a child from a nor­mal dis­cre­tionary trust set up dur­ing your life­time (45% for every dol­lar over $3,000).

By using a dis­cre­tionary tes­ta­men­tary trust, any income gains, cap­i­tal gains and franked div­i­dends earned from your estate assets after you die, can be dis­trib­uted among fam­i­ly ben­e­fi­cia­ries each year in the most tax-effi­cient way.

2. Asset pro­tec­tion benefits

Assets held on trust are afford­ed a gen­er­al lev­el of pro­tec­tion from loss sim­ply by virtue of being trust assets. By hav­ing your will set up with tes­ta­men­tary trusts your ben­e­fi­cia­ries ben­e­fit from this added lev­el of protection.

For instance asset pro­tec­tion ben­e­fits include pos­si­ble pro­tec­tion to your ben­e­fi­cia­ries’ inher­i­tance should your ben­e­fi­cia­ry one day come under attack from cred­i­tors, for exam­ple in a bank­rupt­cy situation.

3. Oth­er Pro­tec­tive benefits

Oth­er pro­tec­tive ben­e­fits flow from hav­ing a tes­ta­men­tary trust in your will. These ben­e­fits apply in par­tic­u­lar to ben­e­fi­cia­ries who are either inca­pable of man­ag­ing their own affairs (due to spend­thrift ten­den­cies, addic­tions, age or dis­abil­i­ty) or are vul­ner­a­ble to exploitation.

Such ben­e­fits are gained via the mechan­ics of how a tes­ta­men­tary trust, upon your pass­ing, is set up and man­aged. For instance, by hav­ing a tes­ta­men­tary trust the assets of your estate are held and man­aged by a trustee (as appoint­ed by you) for the ben­e­fit of your beneficiary.

By sep­a­rat­ing the aspects of con­trol and ben­e­fit in this way an inca­pable or vul­ner­a­ble ben­e­fi­cia­ry can be ade­quate­ly protected.