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Asset and Wealth Protection through Testamentary Trusts

For an increasing number of high net worth individuals with complex professional and personal affairs, the question of how best to approach long term estate planning and in particular, what is likely to be the best way to preserve wealth for the benefit of successive generations of family, is becoming an important issue.

The answer may be to incorporate a testamentary trust into your will.

There are many benefits in utilising a testamentary trust.

One advantage is that it allows an individual who has acquired significant wealth to exercise a greater degree of control over how that wealth will be distributed to beneficiaries not just immediately after death but potentially for multiple future generations.

Testamentary trusts are well suited to blended family situations or where a testator has concerns that a first generation beneficiary such as a spouse or child may waste their inheritance, leaving little if anything of the testator’s legacy and wealth to be passed on to future generations. 

Set out below are some other situations where a testamentary trust might be beneficial.

Tax Advantages

Testamentary trusts can be utilised to gain potentially significant tax savings.

For example children under the age of 18 years who receive income from a testamentary trust are taxed on that income as an adult and thereby enjoy the normal tax free threshold ($18,200, or $20,595 if the low income rebate applies) and the marginal tax rates which apply to adults.

Without a testamentary trust, income to minors receives a tax free threshold of only $416 (no low income rebate applies) and thereafter the highest marginal rate applies to the minor’s income.  

For high net worth estates a testamentary trust can amount to a considerable tax saving and may significantly enhance wealth for future generations.

Bankruptcy

In recent years the incidence of bankruptcy in society has increased significantly. One spouse will often guarantee borrowings of the other, or of associated entities. However, if an inheritance has been provided to the bankrupt through a testamentary trust it will generally be protected from creditors.

Divorce

As with creditors, if appropriately structured an inheritance held within a testamentary trust is unlikely to be the subject of a Family Court order in the case of a marriage breakup. It may be regarded as a financial resource and may have some effect on the terms of a property settlement, but this may be far preferable to the property being available as the subject of a direct Family Court order.

Other Benefits

It is not uncommon for people suffering a variety of disabilities to be unable to properly manage their financial affairs. In such cases families frequently wish to ensure that an adequate fund is set up to meet their reasonable needs, but if possible so as not to affect any pension rights they may have. The flexibility of a testamentary trust, especially if combined with an appropriate memorandum of wishes as to how the trust should be administered, may be an appropriate arrangement.

In order to achieve optimum results and wealth preservation it is essential that early consideration is given to how best to achieve an individual’s desired aims through this type of structure. Testamentary trusts, while largely promoted as a tax saving mechanism, have many other advantages. Their inherent flexibility makes them worthy of consideration in your overall estate planning strategies. If you consider that such a structure may be of benefit to you our expert lawyers can advise you and work with you to develop a future proof plan.

Garland Waddington have particular experience and expertise in assisting clients in this area. If you or someone you know wants more information or needs help or advice, please contact us on (07) 5443 4866 or email kwaddington@gwlaw.com.au.

If you need help, or have a question get in touch with us today.