Testamentary and Family Trusts

Different types of trusts

Trusts are a valuable wealth management and succession planning tool.

You are able to establish a trust during your lifetime (called an “inter vivos” trust and commonly used in the form of a family or other discretionary trust) or one that operates only in the event of your death (called a “testamentary trust”).

It is important to understand that the assets within an inter vivos trust, and the trust itself, do not form part of your assets upon death, although it is possible to effectively pass the management of the trust to nominated persons and thereby pass the holding of the trust assets.

Inter vivos trusts versus testamentary trusts

The use of inter vivos trusts as a wealth management and succession planning vehicle is an exceedingly difficult set of concepts to grasp from a legal and taxation perspective and we therefore urge you to seek our advice as well as that of your accountant in relation to critical issues concerning your trust.

On the other hand, a testamentary trust is generally also a discretionary trust, but one created by your will upon your death, where the trustee, usually the executor appointed in the will, is given absolute discretion about who benefits, and to what extent, under the trust.

A testamentary trust will give you as the will maker and your beneficiaries two major advantages:

• There are significant taxation advantages in terms of income splitting
• Protection of the bequeathed assets from any financial or other difficulties that the beneficiaries may suffer (for example, a child who is or is about to become a bankrupt, or whose marriage is in trouble, or who has drug or alcohol or gambling problems).

By comparison, a typical will that does not include provision for a testamentary trust has little or no scope for asset protection or tax minimisation.

Advantages of testamentary trusts

The main advantage of using a discretionary testamentary trust for bequeathed assets is that any income gains, capital gains and franked dividends can be distributed among all the family beneficiaries each year in the most tax-effective way from year to year

Every family is different and their asset holding structures and needs will vary.  Not all families will benefit from having trust structures for wealth management and asset protection.

How we can help

Ask us for advice on whether assets should be held in a family trust or dealt with in your will by way of a testamentary trust.

We will be able to explain the different options and break it down in a way that can be easily understood.  We will also be able to advise you on:

• What the different trust structures will mean to you from a day to day perspective and in the long term;
• What ultimately the best trust structure for you;
• When your structure should be reviewed or changed;
• The cost of changing your structure (for example, taking into account stamp duty);
• The possible impact of family law, bankruptcy law, social security law, superannuation law, tax law, and wills, estates and trusts law on whatever trust structure you have in place.

Different types of trusts

Trusts are a valuable wealth management and succession planning tool.

You are able to establish a trust during your lifetime (called an “inter vivos” trust and commonly used in the form of a family or other discretionary trust) or one that operates only in the event of your death (called a “testamentary trust”).

It is important to understand that the assets within an inter vivos trust, and the trust itself, do not form part of your assets upon death, although it is possible to effectively pass the management of the trust to nominated persons and thereby pass the holding of the trust assets.

Inter vivos trusts versus testamentary trusts

The use of inter vivos trusts as a wealth management and succession planning vehicle is an exceedingly difficult set of concepts to grasp from a legal and taxation perspective and we therefore urge you to seek our advice as well as that of your accountant in relation to critical issues concerning your trust.

On the other hand, a testamentary trust is generally also a discretionary trust, but one created by your will upon your death, where the trustee, usually the executor appointed in the will, is given absolute discretion about who benefits, and to what extent, under the trust.

A testamentary trust will give you as the will maker and your beneficiaries two major advantages:

• There are significant taxation advantages in terms of income splitting
• Protection of the bequeathed assets from any financial or other difficulties that the beneficiaries may suffer (for example, a child who is or is about to become a bankrupt, or whose marriage is in trouble, or who has drug or alcohol or gambling problems).

By comparison, a typical will that does not include provision for a testamentary trust has little or no scope for asset protection or tax minimisation.

Advantages of testamentary trusts

The main advantage of using a discretionary testamentary trust for bequeathed assets is that any income gains, capital gains and franked dividends can be distributed among all the family beneficiaries each year in the most tax-effective way from year to year

Every family is different and their asset holding structures and needs will vary.  Not all families will benefit from having trust structures for wealth management and asset protection.

How we can help

Ask us for advice on whether assets should be held in a family trust or dealt with in your will by way of a testamentary trust.

We will be able to explain the different options and break it down in a way that can be easily understood.  We will also be able to advise you on:

• What the different trust structures will mean to you from a day to day perspective and in the long term;
• What ultimately the best trust structure for you;
• When your structure should be reviewed or changed;
• The cost of changing your structure (for example, taking into account stamp duty);
• The possible impact of family law, bankruptcy law, social security law, superannuation law, tax law, and wills, estates and trusts law on whatever trust structure you have in place.