Testamentary trusts
The Testamentary trust is usually established to protect assets but it’s important to go beyond the motivation to understand the reasons why you might consider this to be a good idea that suits you. We also explain how it may insulate you and your beneficiaries from a variety of circumstances.
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Announcer Group
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Our privately owned, holistic and unique One_Stop_Shop experience, ensures a streamlined & integrated approach to your specific objectives, utilising our in-house team of experts, from Financial Planning,Tax, Property, Law, Mortgages & Lending.
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Published on 20 Jul 14
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Preparing a budget
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The Testamentary trust is usually established to protect assets but it’s important to go beyond the motivation to understand the reasons why you might consider this to be a good idea that suits you. We also explain how it may insulate you and your beneficiaries from a variety of circumstances.
Sponsor - Announcer Group
Announcer Group
Created and grown from one extraordinary idea, to have all your financial experts in one place, at one time, for your ongoing care and convenience.
Our privately owned, holistic and unique One_Stop_Shop experience, ensures a streamlined & integrated approach to your specific objectives, utilising our in-house team of experts, from Financial Planning,Tax, Property, Law, Mortgages & Lending.
Ensuring your experience with Announcer is a truely rewarding one. Don't believe us - Try Us! Let's Plan!
www.announcer.com.au
-
Preparing a budget
Duration 00:00
Testamentary trusts are usually set up to protect assets. A testamentary trust may be created using specified assets, a designated portion of your estate or the entire remaining balance of your estate. Multiple testamentary trusts may be created by the one will.
Here are some reasons why you would create a testamentary trust:
- The beneficiaries are minors (under 18 - 21 years old)
- The beneficiaries have diminished mental capacity
- You do not trust the beneficiary to use their inheritance wisely
- You do not want family assets split as part of a divorce settlement
- You do not want family assets to become part of bankruptcy proceedings.
Assets in a testamentary trust may be protected from litigation, bankruptcy and divorce. That’s the asset protection side of it, in the event of the beneficiaries being sued or going through a divorce.The other attraction is that a testamentary trust may distribute income to children or grandchildren in a highly tax-effective way, because they may receive the income on adult marginal tax rates, meaning that the first $6000 each year may be tax-free.
Quite often grandparents set up testamentary trusts for their grandchildren for this reason, because it is more tax-effective to support those children compared to the parents themselves inheriting and having to spend after-tax dollars on the kids.
Under a testamentary trust, the beneficiaries may decide if any realised capital gain – for example profits on sale of assets - or surplus income should be reinvested in the trust or distributed, to ensure that they tax is minimize if that is suitable.
There may be no CGT incurred by moving estate assets into a testamentary trust. CGT is payable on assets sold during the term of the trust - which differs according to state or territory jurisdiction - and on wind-up of the trust.
A testamentary trust will be administered by a trustee who is usually appointed in the will. A trustee must look after the assets for the benefit of the beneficiaries until the trust expires.
Because a testamentary trust can live for up to 80 years from your death, it can provide flexibility, asset protection and taxation advantages for several generations of a family.