Legal Comment from Mark Illidge of Hinterland Lawyers 

March 2004                     

Would you like to exercise more control over your estate and make life easier for your beneficiaries in the event of your death?

"Testamentary Trust Will" is a term used to describe what is usually a Discretionary Family Trust established under a Will. A number of benefits arise from the fact that the assets of the Trust, while controlled by a beneficiary, do not form part of that beneficiary's estate.  These benefits can be seen in a number of everyday circumstances:

Taxation Advantages

Currently children under the age of 18 years who receive income from a Testamentary Trust are taxed on that income as an adult and benefit from the normal tax free threshold and marginal tax rates which apply to adults.

Income from an inheritance can also be divided among beneficiaries with income splitting advantages minimising tax to those beneficiaries.

 Bankruptcy

An inheritance provided through a Testamentary Trust will be protected from the creditors of a bankrupt beneficiary.

 Pension Benefits

Currently the assets of a Testamentary Trust are not taken into account in establishing pension eligibility under the current means tested pension rules.  However, income from the Trust is taken into account for income test purposes.

 Spendthrifts

Beneficiaries who are not financially reliable can receive income from an inheritance without having access to capital.

 People with Disabilities

The Testamentary Trust allows for a fund to be set up to meet the disabled persons reasonable means, but so as not to affect any pension rights they may have.

 Divorce

An inheritance held within a properly drawn Testamentary Trust is unlikely to be the subject of a family court order in the case of a marriage break-up.

You can now see that, while it may take a little extra effort to put in place, the benefits of a Testamentary Trust Will can be significant.

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