The Rise of Testamentary Trust Wills
In recent years, Testamentary Trust Wills have gained popularity as an effective way for individuals to pass on their assets to beneficiaries. As property values in New South Wales continue to rise and awareness of superannuation increases, many are considering how the next generation will manage their inheritances.
The benefits of a testamentary trust are so significant that every person making a will should consider implementing them.
What is a Testamentary Trust Will?
A Testamentary Trust Will comes into effect upon the death of the will-maker. Here’s a simple breakdown of how it works:
- Estate Administration: After death, the estate is administered, including obtaining a grant of probate and collecting the estate’s assets.
- Trust Transfer: Instead of transferring assets directly to beneficiaries, the estate’s assets are placed into a Testamentary Trust established by the will.
From this point, standard trust principles apply:
- Trustee: A designated trustee manages the trust and makes daily decisions.
- Beneficiaries: The trust includes primary beneficiaries and their descendants who can benefit from the trust.
- Trust Property: The assets must consist of the deceased’s estate.
- Appointor: The appointor has the power to select or remove trustees.
Key Advantages of Testamentary Trusts
Asset Protection
One of the most compelling reasons to consider a Testamentary Trust is the asset protection it offers beneficiaries. This is particularly relevant in two scenarios:
- Relationship Breakdown: With one in three marriages ending in divorce, protecting family assets is crucial. A beneficiary receiving an inheritance through a simple will typically has that inheritance intermingled with their marital assets. In the event of a divorce, the Family Court may order a division that includes inherited assets. A Testamentary Trust helps avoid this risk by keeping the inherited assets separate, as they are not legally owned by the beneficiary. The court views the trust as a “financial resource” rather than a “divisible asset,” protecting the inheritance.
- Bankruptcy: If a beneficiary has a high-risk occupation or struggles with financial management, receiving an inheritance directly could pose risks. A Testamentary Trust ensures that the inherited assets are not counted as part of the beneficiary’s personal assets in the event of bankruptcy, providing significant protection.
Tax Advantages
Testamentary Trusts also offer tax benefits. Income generated from the trust can be distributed more effectively, potentially lowering the tax burden. Instead of income going solely to one beneficiary, it can be allocated among a wider class of beneficiaries, including children or grandchildren. This distribution can allow for income to be taxed at lower marginal rates, resulting in significant tax savings.
Is a Testamentary Trust Will Right for You?
If your estate includes assets that could exceed $350,000, it’s worth considering a Testamentary Trust Will. This is especially true if your beneficiaries face challenges such as addictions, spending issues, unstable relationships, or high-risk occupations.
Contact Gamble Law Today
At Gamble Law, we’re committed to ensuring that your wishes are upheld and your loved ones are protected. Whether you’re just starting to think about your estate planning or are ready to create a will, our experienced team is here to help.
Contact us today to schedule a consultation and take the first step in securing your legacy.
