Introduction
Having a solid Will in place is crucial if you want your estate assets to be distributed according to your wishes. You also have the freedom to choose the type of Will that suits your needs. As life evolves, so do the options for estate planning. Given rising property values, protecting assets and optimizing tax benefits have become significant concerns. Additionally, superannuation must be carefully considered when drafting a Will. In today’s world, with second marriages and blended families being more common, different solutions are often required.
Modern Wills can include beneficiary testamentary trusts, allowing each beneficiary to receive their inheritance within a trust they control. Alternatively, a Will can be created without these trusts, meaning the inheritance is directly allocated to the beneficiaries in their name.
The choice of whether to include testamentary trusts depends on your specific circumstances.
Do I Need a Will with Testamentary Trusts?
Wills with testamentary trusts provide greater flexibility and potential benefits. There are various types of testamentary trusts, but before diving into them, it’s essential to understand how a regular family trust works.
Back to Basics: What is a Trust?
Imagine a teacher buys treats for her students. She holds the treats and decides when and how to distribute them. In this scenario, the treats represent the trust’s assets, the teacher is the trustee, and the students are the beneficiaries. The school principal, acting as the appointor, can replace the teacher whenever needed.
In legal terms, a trust involves a trustee who holds assets for the benefit of the beneficiaries, with the appointor holding the authority to remove and replace the trustee.
Testamentary Trusts Explained
A testamentary trust is a provision within a Will rather than a separate legal entity. A well-prepared Will includes a variety of testamentary trust options to cater to different circumstances that might affect beneficiaries at the time of your passing. These provisions serve as tools to be used if needed, offering flexibility for unforeseen events.
Types of Testamentary Trusts
General Testamentary Trusts
Example: If you have a child who is starting a business, a general testamentary trust can protect their inheritance from potential business creditors. This trust allows each beneficiary to take their inheritance in the form of a trust they control. Benefits include:
Bankruptcy Protection: Estate assets in a trust are shielded from claims by creditors in case of a beneficiary’s bankruptcy.
Tax Benefits: Income can be distributed to children or other discretionary beneficiaries, leveraging lower tax rates for minors.
Access Restriction: Control access to the inheritance until a set age, often 25.
Family Law Advantages: Testamentary trusts can help protect assets in the case of a beneficiary’s relationship breakdown.
Superannuation Death Benefits Proceeds Trust
Example: If you have significant superannuation savings, this trust ensures that superannuation death benefits go to the beneficiaries entitled to relevant tax concessions, maximizing the amount they receive.
Child Testamentary Trusts
Example: If you have young children, a child testamentary trust can manage their inheritance until they are old enough to take control. This ensures that their financial needs are met while they are minors.
Special Care Trusts and Special Disability Trusts
Example: If you have a beneficiary with a disability, these trusts are designed to support them by managing their inheritance and ensuring they receive the care they need.
Lifetime Benefits Trusts
Example: In the case of a second marriage, a lifetime benefits trust can provide ongoing income or accommodation for a surviving spouse, while ensuring that the children from the first marriage eventually inherit the assets.
Capital Preserved Trusts
Example: If you want to ensure that the capital of your estate is preserved for future generations, this trust limits the beneficiary’s access to the capital, ensuring it is preserved for a specified period.
Other Important Provisions
Equalisation clauses ensure fairness when one beneficiary has already received a significant benefit during the Willmaker’s lifetime, such as a deposit for a house. These provisions ensure each beneficiary receives an equal share of the total estate.
Need Assistance?
For more information or an obligation-free consultation, call us on 1300 459 101 or email us at admin@wealtheffect.com.au. With our extensive experience, fixed pricing, and dedication to delivering positive client outcomes, we are ready to assist with your estate planning needs.
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