Testamentary trustsShould you have one in your will?

cc: thorinside - https://www.flickr.com/photos/35237096343@N01

This slideshow compares a simple will with a will that has

testamentary trusts

Definition of testamentary trusts

• Any trust established under a

will is known as a

"testamentary trust".

• Testamentary trusts operate

like discretionary trusts with

added advantages.

cc: Pro-Zak - https://www.flickr.com/photos/28998362@N00

Office holders in testamentary trusts

• Appointor

• Protector

• Trustee

cc: Will Montague - https://www.flickr.com/photos/36607441@N05

Appointor• The selection of the right Appointor

is critical because the Appointor can

‘hire and fire’ the trustee.

• You can appoint your executor or

someone else as the trust

Appointor.

cc: TANAKA Juuyoh (田中十洋) - https://www.flickr.com/photos/13910409@N05

Protector

• The function of the Protector is to protect the interests of the primary beneficiary against improper actions by the trustee.

• The Protector has a power of veto —the power to refuse consent - over a range of substantial actions by the trustee.

• The beneficiary could be the protector.

cc: DonkeyHotey - https://www.flickr.com/photos/47422005@N04

Trustee

• The trustee holds the legal title to the

trust assets on behalf of the

beneficiaries.

• The trustee can be a relative, a friend

or a professional trustee.

cc: Pink Sherbet Photography - https://www.flickr.com/photos/40645538@N00

Common problems with simple wills

• Do not deal with superannuation

• Do not deal with life insurance

• Do not deal with companies

• Do not deal with trusts

• Do not have an equalisition clause

• Do not provide asset protection

• Do not minimise taxcc: Photos by Mavis - https://www.flickr.com/photos/42941459@N00

Simple will - tax issues

• The gift is received absolutely.• Any income generated by that gift will

be taxable.• The higher the beneficiary's income is

the higher the tax payable by the beneficiary will be on income generated by the inheritance gift.

cc: 401(K) 2013 - https://www.flickr.com/photos/68751915@N05

Testamentary trust - tax

• In contrast to simple wills a trustee of a

testamentary trust can distribute trust

income not only to the primary

beneficiary.

• This can significantly minimise tax.

cc: LendingMemo - https://www.flickr.com/photos/92802060@N06

Simple will - no asset protection

• There is no protection for beneficiaries

who experience any of the following:

business failure, gambling debts, sued

professionally, addiction, spendthrift

tendencies.

cc: Nrbelex - https://www.flickr.com/photos/91351004@N00

Testamentary trust - asset protection

• Assets held in a trust are protected

from the bankruptcy of a beneficiary.

• Protection can also be afforded in cases

of a beneficiary's marriage breakdown

if that beneficiary does not have any

control over the trust.

cc: Alberto Cabello Mayero - https://www.flickr.com/photos/53477761@N08

Simple Will - super issues

• Intention may have been to divide the estate equally between the beneficiaries.

• But a dependent beneficiary receives the super in addition to their share under the will.

• Resulting in unequal distribution of the estate contrary to the testator's intentions.

cc: verbeeldingskr8 - https://www.flickr.com/photos/35429044@N04

Testamentary trust - super

• Has an equalisation clause.

• Such a clause having regard to both,

estate and non-estate assets.

• Achieves overall equality and

proportionality.

cc: saxarocks - https://www.flickr.com/photos/9450118@N03

Simple will - loans

• Unrecorded loans to beneficiaries are likely to result in unequal distribution of the estate.

• An equalisation clause in a testamentary trust will account for loans and result in an equal distribution.

cc: LendingMemo - https://www.flickr.com/photos/92802060@N06

Testamentary trustpreservation age

• The key benefit of a testamentary trust will is that upon reaching the preservation age a beneficiary can choose whether to take their benefits directly or to have them held in trust for them.

• The preservation age is chosen by the testator.

cc: archer10 (Dennis) (54M Views) - https://www.flickr.com/photos/22490717@N02

Testamentary trust-vulnerable beneficiary

• Only a testamentary trust can impose special obligations, conditions and restrictions upon the trustee for the provision of long term care for a vulnerable primary beneficiary.

• A beneficiary with a physical or mental handicap, or an addiction to drugs or alcohol is vulnerable.

cc: hjhipster - https://www.flickr.com/photos/61636255@N00

Are you interested to

• minimise the tax liability of your estate• protect your estate from the marriage

breakdown of a beneficiary• protect your estate from the bankruptcy

of a beneficiary• protect your estate from disputes and

litigation• protect the gifts to a vulnerable

beneficiary?cc: Roo Reynolds - https://www.flickr.com/photos/85429509@N00

A simple Will may not provide the protection that you require.

Call 9221 2888 or email val@tanandtanlawyers.com if you

want to learn more about testamentary trusts.