Hypothetical by Manny Wood published in the Coffs Coast News Of The Area on 7 August 2020.
Michael has assets of $2 million. He is not in a relationship and has two adult children and several grandchildren.
Michael executed a “simple” will a few years ago, appointing his two children as his executors and leaving the whole of his estate to both of them equally.
Michael is concerned that given the potential size of his estate, having a “simple” will may not be suitable and he seeks legal advice regarding his estate planning.
His solicitor suggests that Michael makes a new will that establishes testamentary trusts for the benefit of his children.
Testamentary trusts come in many different forms. These wills can have substantial tax benefits because they allow for income splitting and in particular distributions to minors that are not subject to the usual tax-free threshold, which is currently just $416, and instead allows distributions to minors up to a current tax-free threshold of $18,200.
This means that the income generated from his children’s inheritance, can be shared amongst their family, resulting in substantial tax savings each year.
Testamentary trusts can also provide protection in the event of the breakdown of a child’s relationship with their partner and can also be useful in the event of bankruptcy.
Testamentary trusts can also include establishing “umbrella trusts”, “mothership trusts” or “flowering trusts”. Special disability trusts and charitable trusts can also be useful in certain situations.
Testamentary trusts are not for everyone and they need to be tailored to each individual’s particular circumstances and should only be prepared in conjunction with receiving the proper accounting and financial planning advice.
If you would like a particular issue addressed in future Hypotheticals, email me at manny.wood@ticliblaxland.com.au or call (02) 6648 7487.
