Testamentary trusts are written into your comprehensive testamentary trust Will, waiting to be established by your executor for your beneficiaries after your death. For example, in Wills from Will Wizard, an entire segment is dedicated to providing the rules by which the testamentary trusts can be established and used. For a Will owner relying on a Will from Will Wizard, all that needs to be done to provide testamentary trusts to beneficiaries is to follow the signing instructions we provide in our Will Wizard portfolios. After you die, your executor uses your Will to establish testamentary trusts for your beneficiaries, with your Will becoming your beneficiary’s testamentary trust document. A beneficiary names their testamentary trust (i.e. John Smith Holdings) and receives a tax file number for their trust. The annual accounting costs of a testamentary trust are minimal, usually only $300 - $500 for lodging a simple tax return. Beneficiaries still manage and invest their inheritance as they normally would. But under law, the inheritance is not owned in their name. Instead, under law, it is 'held on trust' for the benefit of each beneficiary. By holding their inheritance in a testamentary trust, beneficiaries can protect inheritances from third-party threats such as during a divorce or bankruptcy and can minimise the ongoing income tax and capital gains tax burden on inherited wealth. Testamentary trusts are not all the same. The terms of a trust, which are the rules by which the trust is managed, vary from Will to Will. In Wills from Will Wizard, we provide extremely detailed and broad terms (or rules) so that a beneficiary has complete flexibility with how they manage and invest their inheritance. This flexibility is critical, as the future circumstances and tax status of beneficiaries remains unknown. IMPORTANT: If your Wills do not include the testamentary trust provisions & terms, your beneficiaries cannot use testamentary trusts after you die. What happens after you die? After your death, your executor would meet with a solicitor or accountant who would review the terms of trusts provided in the Will and explain the process to set up each testamentary trust. They would provide detailed advice to your executor and beneficiaries on what assets should go into a testamentary trust, along with the appropriate minutes to establish a testamentary trust. They would assist your executor and beneficiaries in applying for a TFN, and provide advice on the naming conventions, along with formal instructions detailing what their obligations and next steps are. Once set up, it becomes a simple matter of submitting a tax return each year for their trust. The cost of establishing a testamentary trust is similar to the cost of establishing a discretionary family trust during your lifetime but differs slightly from one professional to the next. However, executors should probably expect to pay $1,000 - $1,500 to an experienced accountant for their time. These establishment costs would be paid for by your estate. The cost of submitting a tax return each year also depends on the accountant used but would range from a few hundred dollars up to a thousand dollars or so each year, depending on complexity. These costs would be paid for by the trust. Given the long-term asset protection benefits and opportunities to minimise the income tax and capital gains tax burden on inherited wealth, these establishment costs and running costs are more than worth it.

Yes. There is no sensible argument against relying on a Will that gives your beneficiaries the option to utilise testamentary trusts given the tax minimisation opportunities and asset protection benefits testamentary trusts provide.

No, they are not expensive. Especially when the tax minimisation opportunities and asset protection benefits of trusts are considered. Establishment costs The establishment costs charged by an accountant and/or solicitor are minimial and should form part of the normal estate administration costs handled by the executor on behalf of the estate. An estimate cost for establishment would be approximately $1,000 to $2,000 depending on the rates charged by the accountant and/or solicitor. Managment costs Each year a beneficiary must submit a simple tax return for their testamentary trust(s). The accounting costs should only range from a few hundred dollars to around a thousand dollars depending on complexity and the rates charged by the accountant. Should loans be made by the trust, minutes will need to be submitted also which may increase the management costs slightly.

Testamentary trusts help beneficiaries protect inherited assets during events like a divorce, and from financial problems like bankruptcy. Testamentary trusts also help beneficiaries to minimise their tax obligations long-term. Testamentary trusts can last for 80 years, with the benefits passing from one generation to the next. Let’s look at the four main advantages in more detail. Testamentary Trust Advantage #1 Testamentary trusts help protect inheritances from family law claims Relationships last 10 years on average, so it is statistically probable that a beneficiary will go through a divorce, or de facto break-up after you pass away. How do testamentary trusts help? With the inheritance held by a testamentary trust, inherited assets are isolated from the beneficiary’s personal assets. This means the inheritance would not form part of the disputing couple’s combined assets that are up for grabs in Family Court proceedings. Testamentary Trust Advantage #2 Testamentary trusts protect inheritances from bankruptcy or owing money to creditors, like a bank. How? Assets held by a testamentary trust are not personally owned by the beneficiary, and therefore do not form part of the beneficiary’s personal assets. Therefore, a person or company claiming against the beneficiary that is having financial problems cannot obtain the inheritance held by the testamentary trust. Testamentary Trust Advantage #3 Testamentary trusts give beneficiaries the option to reduce their personal income tax. How? Beneficiaries distribute income from the investment of their inheritance to family members on low tax rates. A beneficiary can distribute up to $18,200 of income from their testamentary trust, tax-free, to pay for a family member’s education and living expenses. For an $800,000 estate, earning a modest 5% return, this equates to $40,000 income per year. With this income distributed to multiple children - over ten years this would mean $400,000 for your beneficiary's family rather than the ATO. Testamentary Trust Advantage #4 Testamentary trusts allow beneficiaries to reduce capital gains tax. How? Beneficiaries are permitted to distribute capital gains from their testamentary trust to family members on a low or nil income. This way the capital gains tax liability from inherited wealth can be significantly reduced each year. Also, capital gains tax is not triggered when an asset belonging to you passes via your Will, to a testamentary trust.

No. Forcing beneficiaries to share a single trust can easily lead to disputes. However, if beneficaireis are provided with the appropriate professional advice in favour of sharing a single trust, Wills from Will Wizard can accomodate this without issue.

The trustee is the person appointed by a beneficiary to manage and control their testamentary trust. Most beneficiaries choose to appoint themselves as the trustee. If the beneficiary is over your nominated controlling age, most beneficiaries choose to appoint themselves as the trustee, unless they choose to nominate other persons to act as trustee for them, or they could choose to nominate a private company or corporate trustee. If a beneficiary is under your nominated controlling age, your executor or their legal representative will act as trustee until the beneficiary reaches your controlling age. Young beneficiaries still have access to funds for their welfare, well-being, education, housing, family & medical needs. No matter who acts as trustee, the trust assets and trust income are for the benefit of the beneficiary only unless the beneficiary gives permission for someone else to benefit - like their children. In Wills from Will Wizard, there are a set of defined circumstances where a beneficiary is not permitted to be the trustee of their own trust. When inherited wealth is at high risk, your beneficiary can be temporarily replaced as trustee by your executor, or the executor's legal representative. The trust assets and income are still for the benefit of the beneficiary only. This is a common and effective legal strategy that helps to further protect the inheritance during a beneficiary's divorce, or during a beneficiary's financial problems or bankruptcy. This strategy could also be used if the beneficiary develops a serious addiction issue or a mental health concern. Beneficiaries at risk still have access to funds for their welfare, well-being, education, housing, family & medical needs.

Yes. Will Wizard testamentary trusts are extremely practical. - They are simple and inexpensive to run; - They can adapt to suit your beneficiaries’ changing needs and tax status; - They can be ended if the beneficiary decides to reside full-time overseas; - They can help to minimise disputes between beneficiaries.