Which beneficiaries get a testamentary trust?

Testamentary trusts can only be created by a Will that includes the required legal provisions and trust terms. 

These terms are the 'rules' that dictate which beneficiaries have the option to receive their inheritance in a testamentary trust. 

Will Wizard provides every beneficiary, including the bloodline lineal descendants of beneficiaries (i.e. children, grandchildren & so on), with the option to inherit via a testamentary trust that they personally control as trustee (unless they choose a third party trustee).

The terms (or rules) of our testamentary trusts are very broad to give beneficiaries complete flexibility in how they manage their trust over time depending on their changing needs, wishes and circumstances.

 

Our testamentary trusts are optional (a beneficiary can choose to inherit via a testamentary trust or not), individual (each beneficiary gets their own trust) and discretionary (each beneficiary controls their own trust unless they choose otherwise). 

Most importantly, our testamentary trusts are for the benefit of the primary beneficiary only, unless the primary beneficiary gives expressed consent for others to benefit from the trust. 

To view every clause in our Wills including the terms of trust  click here. 

 

Do beneficiaries have to use a testamentary trust?

The terms of any testamentary trust dictate the rules of that trust. So each Will has different rules depending on the trust terms it includes.

 

One of the rules of any trust should be to make having a testamentary trust optional. 

The terms of trust included in Wills from Will Wizard make having a testamentary trust optional (a beneficiary can choose to inherit via a testamentary trust or not), individual (each beneficiary gets their own trust) and discretionary (each beneficiary controls their own trust unless they choose otherwise).

 

The aim of any testamentary trust should be to provide beneficiaries with maximum flexibility in how they manage their inherited wealth depending on their needs, wishes and circumstances. 

 

Can a beneficiary end a testamentary trust?

Yes - you can end or vest a testamentary trust at any time, however, it does depend on the terms of the trust.

 

Testamentary trusts created by Wills from Will Wizard can be vested at any time by the trustee (subject to the approval of the primary beneficiary - usually the same person).

 

As always, seek professional financial advice before deciding if the best course of action is to terminate the trust.

 

What if a beneficiary is a child?

All Wills from Will Wizard provide each beneficiary (i.e. your children) with the option to become the trustee (i.e. the controller) of their own trust.

However, if a beneficiary is a child, or is under your nominated controlling age, your executor becomes the trustee until the beneficiary reaches the controlling age where they can assume the role of trustee of their own trust. 

 

Until such time that your children reach your nominated controlling age, your executors have the power to apply money for the maintenance and support of the beneficiary and to distribute income and benefits to any dependents of the beneficiary. Alternatively, your executors can also choose to make the prospective beneficiary the sole income beneficiary.

It is important to understand that whether or not the beneficiary is trustee, or someone else is acting as a trustee, the trust is always for the benefit of the beneficiary only - unless the beneficiary authorises other people or organisations to also benefit from the trust. The terms of our trusts are broad to give beneficiaries flexibility in how they manage their trust long-term.

 

Who receives my estate?

All Wills from Will Wizard are drafted with the primary aim being to minimise risk and maximise the benefit for your loved ones. To help avoid costly disputes and contested estates, we follow Australia's laws of intestacy that dictate who has a legal right to your estate.  Make a selection below that best describes you to learn how your estate would be distributed by Will Wizard:

 

How are estates distributed to minors?

All Wills from Will Wizard provide each beneficiary (i.e. your children) with the option to become the trustee (i.e. the controller) of their own trust.

However, if a beneficiary is a child, or is under your nominated controlling age, your executor becomes the trustee until the beneficiary reaches the controlling age where they can assume the role of trustee of their own trust. 

 

Until such time that your children reach your nominated controlling age, your executors have the power to apply money for the maintenance and support of the beneficiary and to distribute income and benefits to any dependents of the beneficiary. Alternatively, your executors can also choose to make the prospective beneficiary the sole income beneficiary.

It is important to understand that whether or not the beneficiary is trustee, or someone else is acting as a trustee, the trust is always for the benefit of the beneficiary only - unless the beneficiary authorises other people or organisations to also benefit from the trust. The terms of our trusts are broad to give beneficiaries flexibility in how they manage their trust long-term.

 

Can assets in a testamentary trust be transferred to future generations?

The answer depends on the particular terms of trust included the Will. 

Wills from Will Wizard anticipates testamentary trusts passing from one generation to another ensuring the advantages of a testamentary trust (asset protection, tax advantages, dispute avoidance etc) are not lost as wealth is transferred from one generation to the next.

Will Wizard testamentary trusts can pass down through the family for 80 years benefiting multiple generations.

 

What about future grandchildren not named in a Will?

Can beneficiaries of a testamentary trust be the future grandchild or company not identified within the trust deed?

It depends on the terms of trust included in the specific Will.

 

For Will Wizard the answer is yes. Each primary beneficiary has the option to inherit via their own testamentary trust they control as trustee, and as a trustee, they can decide on who (person or company) benefits from said trust. 

 

Our Wills also include a 'back-up estate distribution plan' to ensure that if a primary beneficiary dies before the Will Owner, their bloodline lineal descendants (i.e. children, grandchildren & so on) are provided with the option to receive their share of the estate in their own testamentary trust. 

 

Furthermore, our testamentary trusts can be passed from one generation to the next, thereby preserving the advantages provided by the testamentary trust for future generations. 

Testamentary trusts and beneficiary rights?

The rules by which a testamentary trust is governed are set by the terms of trust in the Will. These rules differ from Will to Will.

 

The terms of trust in Wills from Will Wizard are drafted to protect a beneficiary’s right to determine how they receive and manage their inheritance long-term. The terms (or rules) of our testamentary trusts are very broad to give beneficiaries  flexibility in how they manage their trust over time.

 

If the terms of trust are not drafted in this way, they might infringe on the options a beneficiary has when managing their inheritance.

 

Will Wizard allows for executors (in consultation with beneficiaries) to amend the terms of trust prior to receiving an inheritance to create terms that better suit the beneficiary’s current wishes, needs and circumstances.

 
 

Why should beneficiaries use a trust?

Testamentary trusts are widely recommended by Australian lawyers because they are inexpensive to run but provide extremely valuable asset protection and tax minimisation opportunities to beneficiaries.

Inheritance Protected From Family Law Claims

Testamentary trusts provide protection for a beneficiary who is experiencing family law difficulties. With the inheritance held in a testamentary trust, the primary beneficiary can isolate inherited assets from personal assets. This helps to protect their inheritance from family law property proceedings following a divorce or a de facto break-up.

 

Inheritance Protected From Bankruptcy

 

Testamentary trusts provide protection to your beneficiaries from the repercussions of bankruptcy.

 

Assets that pass to a testamentary trust from an estate are held for the nominated primary beneficiary until the trustee elects to distribute such assets. At law, the assets are not owned personally by the beneficiary and therefore do not form part of the beneficiary’s personal estate. A creditor or other person claiming against the beneficiary, therefore, cannot obtain the assets held in the trust.

Significant Income Tax Savings For Beneficiaries

 

Testamentary trusts give a beneficiary the option to reduce personal income tax by splitting income from the investment of the inheritance between a range of family members on low tax rates. The trustee of the testamentary trust (normally the primary beneficiary) has complete discretion to determine who receives the income of the trust. Tax is paid on the income of the trust at the marginal tax rate of the beneficiaries who receive it.

 

Therefore, by selecting beneficiaries on low marginal tax rates, the trustee can minimise the tax liability of the trust. The trustee can choose to distribute income to minor beneficiaries of the trust with each beneficiary being able to receive over $18,200 of income tax-free to pay for education and living expenses.

Significant Capital Gains Tax Savings For Beneficiaries.

 

Testamentary trusts also provide the opportunity for beneficiaries to minimise Capital Gains Tax which arises from the sale of assets. Capital Gains Tax is not triggered when an asset belonging to you passes via your Will to your executor or the trustee of a testamentary trust. Also, there is no Capital Gains Tax when your assets are transferred from the trustee of a testamentary trust to a beneficiary. As with the income of the trust, the trustee can select which of the beneficiaries of the testamentary trust should take the capital gain.

 

By choosing to distribute the capital gain to a beneficiary on a low or nil income, the capital gains tax liability can be significantly reduced. Holding the assets of an estate within a trust offers the beneficiaries an opportunity to defer the need for the sale of assets (and therefore capital gains tax) until later when more numerous beneficiaries come into existence. Tax-deferred is tax saved.

 

Normally penalty rates of tax apply to income derived from trusts which are paid to children under age 18.​ The Tax Act allows children under age 18 who receive income from a testamentary trust to be treated as adults for tax purposes. This could mean significant tax savings for beneficiaries who can “split income” with their minor children. Over 10 years this could be mean hundreds of thousands of dollars for your family rather than the ATO. 

Summary

 

Testamentary trusts substantially protect inherited wealth from a host of common problems and circumstances that lead to inherited wealth being lost, confiscated and wasted, such as; 

  • A divorce;

  • A de facto relationship breakdown;

  • A bankruptcy;

  • Being sued professionally;

  • A business failure;

  • Debts to creditors;

  • Other money problems;

  • A mental health issue;

  • A drug or gambling addiction.

 

Testamentary trusts also provide opportunities to:

  • Minimise Income Tax;

  • Minimise Capital Gains Tax;

These extremely valuable protections and financial advantages can last for 80 years. Testamentary trusts are also able to be passed across generations creating a long term protected financial legacy for your family. Testamentary Trusts are how smart Aussie families keep their wealth in the family.