A testamentary trust incorporated in your Will provides a powerful tool offering many benefits such as:
- Asset Protection
The assets of the testamentary trust are held by the trustee for the benefit of the beneficiaries. The beneficiaries receive distributions (as determined by the trustee) and do not hold the assets in their personal name. Therefore, the assets held in a trust can be “shielded” from events in a beneficiary’s life such as a relationship breakdown, bankruptcy or other legal disputes.
- Income tax flexibility
The income earned by the testamentary trust must be distributed to the beneficiaries each year. The trustee can choose who will receive the income earned each year. Minor beneficiaries of a testamentary trust are treated as adults for tax purposes, meaning that they can receive a significant tax-free threshold each year. The trustee may take advantage of tax savings by making distributions to minor beneficiaries. For example, the distribution could be used to pay for the minor beneficiary’s private schooling or health.
- Control and management
You may appoint a responsible person to control and manage the assets in accordance with your wishes.
You may nominate lineal descendants as beneficiaries of the testamentary trust. For example, this could be useful where your surviving spouse re-partners. The assets are held in a testamentary trust and not available for your spouse to gift to a new spouse or be subject to any future family law risks.
If you and your spouse pass away together, you can determine who is responsible for managing your children’s inheritance until they reach an age of financial maturity.
- Vulnerable beneficiaries
Where there are beneficiaries who are under 18, struggle with substance abuse or have a history of mismanaging money, a testamentary trust can offer ongoing protection and management of their inheritance.
If you are considering whether a Will incorporating a testamentary trust may be beneficial to your circumstances, please contact The Small Business Lawyer to arrange a consultation. Meetings may be held in person or via Zoom.