Testamentary Trust - How to Protect Your Assets and Loved Ones

Testamentary Trust – How to Protect Your Assets and Loved Ones

A Testamentary Trust included in a Will helps manage your assets and protects your beneficiaries. A Testamentary Trust also has tax benefits by reducing the amount of tax payable on an inheritance.

Types of Testamentary Trusts

There is no fixed template for a Testamentary Trust. Testamentary Trusts must be tailored to an individual or family.

Trusts can be discretionary, giving full access and control to the beneficiaries, or protective, where the Trust is managed by a Trustee. A discretionary trust is designed when the person believes that his or her beneficiary/beneficiaries can manage the inheritance wisely. If control is required, then a third party (such as a lawyer) can be appointed as a joint trustee to manage the estate.

There are also special trusts to help children with their education and people with disabilities to manage their assets.

What are the benefits of setting up a Testamentary Trust?

1. Preventing unjust claims

Assets that are held in a Testamentary Trust have a higher degree of protection for your beneficiary or beneficiaries against claims from creditors, an estranged spouse or other relatives.

2. Keeping it in the family

A Testamentary Trust can specify that the assets be passed to future generations in the event that a spouse or partner remarries and has other children.

Testamentary Trusts can also specify when children can have access to their inheritance or for what purposes. Trusts can also be staggered to release assets to beneficiaries over a period of time.

3. Tax treatment

A Testamentary Trust can minimise the amount of tax the beneficiary/beneficiaries have to pay for their inheritance. Assets that pass to beneficiaries can receive better tax treatment when it comes to Capital Gains Tax (CGT) and stamp duty (applicable to some states in Australia).

4. Protecting superannuation

Life insurance or superannuation benefits can be protected by a Testamentary Trust. Tax on superannuation benefits can be as high as 31.5% in Australia if not properly managed.

How to set up a Testamentary Trust

A Testamentary Trust is an important part of estate planning. A wills and estate planning lawyer will be able to help you set up a Testamentary Trust that will be able to protect your loved ones after you pass away.

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