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Inheritance Tax Protections

Is there inheritance tax in Australia?

There is no inheritance tax in Australia, with all states in Australia abolishing what was known as death duties in 1979.  However, assets inherited from your estate and any income from said assets will become subject to capital gains tax and income tax.

 

Will Wizard® provides valuable opportunities for beneficiaries to minimise income tax and defer capital gains tax via the use of simple to run and inexpensive testamentary trusts created by our Wills.

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How does Will Wizard help minimise tax on inheritances?

Despite death duties being abolished, Will owners must consider the income and capital gains taxes that a beneficiary’s inheritance will be subject to.


Income Tax


Through the use of Will Wizard’s special testamentary trust provisions, beneficiaries are given the option to reduce personal income tax by splitting income earned from an inheritance between family members on lower tax rates (i.e. spouse, children under 18, low income earners). The beneficiary, who controls their own trust, can choose to distribute income to minor beneficiaries of the trust.


For example, a beneficiary is able to distribute $18,200 of income tax-free to family members on lower tax rates (to pay for their living expenses, medical, education etc).


For a one million dollar inheritance, assuming a 5% per annum return of $50,000 per year, if this income was distributed among family members on lower tax rates, over ten years a beneficiary could save up to half a million dollars in income tax alone.


Beneficiaries Under 18 Attract Special Tax Concessions


The Tax Act permits children under age 18 who receive income from a testamentary trust to be treated as adults for income tax purposes. This could mean significant tax savings for beneficiaries who can “split income” with minor children.


Capital Gains Tax

Comprehensive Testamentary Trust Wills from Will Wizard® provide the opportunity for your beneficiaries to minimise Capital Gains Tax which arises from the sale of your 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.

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Inheritance Protections

What problems does Will Wizard® help protect inheritances from?

 

There are so many ways a beneficiary can lose their inheritance.

Inheritances are most often lost to divorce, family disputes, taxes, business failure, bankruptcy, and other money problems resulting from gambling, drug addictions, mental illness and poor choices.


The key objective of Will Wizard’s Inheritance Protection Wills is to keep your wealth in the family long term across generations.


Standard 2-5 page Wills do not make any attempt to do this.
 

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How does Will Wizard protect inheritances?

Family Court Proceedings

Through the use of Will Wizard’s special testamentary trust provisions, Will Wizard’s Inheritance Protection Wills greatly protect inherited assets from Family Court proceedings, with assets effectively shielded from any disputed asset pool during divorce proceedings in the Family Court.

 

The average relationship in Australia only lasts approximately 10 years, so it is highly likely that at least one of your children or other beneficiaries will go through a divorce or the breakdown of a defacto or dependent domestic relationship at some point after you pass away.

Bankruptcy, Creditors and Other Money Problems

Money problems can arise from any number of reasons, from bad luck to poor choices. However, assets inherited into a Will Wizard® testamentary trust are protected from bankruptcy, being sued professionally, business failure and creditors - a critical protection to keep your wealth in the hands of your family long term.

Mental Health, Addiction & Personal Crisis

Comprehensive Testamentary Trust Wills from Will Wizard® include crisis provisions which allow beneficiaries to be temporarily distanced from their inheritance when it could be under heightened risk due to their state of mind, an addiction or due to third party claims. The beneficiary still has access to funds for the general welfare, health and education purposes, and will resume control of their inheritance once the threat or crisis has passed. 

Reserve Beneficiaries

Will Wizard® establishes who your preferred reserve beneficiaries are so as to ensure that the State will not end up receiving your estate even if the worst-case scenario happens and all of your first choice beneficiaries and their direct descendants die before they can inherit your estate.

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How long do Will Wizard’s benefits and protections last?

80 years.

These benefits and protections only come into effect after the Will Owner has died and the beneficiary has decided on whether to inherit via a Will Wizard® testamentary trust. If the beneficiary decides to inherit via a testamentary trust then the benefits and protections can last up to 80 years across multiple generations.

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Beneficiary Protections

How does Will Wizard® help protect beneficiaries?

Due to changing life circumstances or health problems, sometimes beneficiaries need protection.

Comprehensive Testamentary Trust Wills from Will Wizard® protect more than just family wealth. Unlike standard 2-5 page Wills, Will Wizard provides executors and beneficiaries with flexible options and safeguards for those times when life takes an unexpected turn for the worse.

Special Testamentary Trusts

Comprehensive Testamentary Trust Wills from Will Wizard® include provisions establishing specialised testamentary trusts which provide greater protections for beneficiaries considered vulnerable due to various reasons such as being poor money managers, highly gullible, disabled, an addict or suffering a mental or physical illness.

Crisis Provisions

Comprehensive Testamentary Trust Wills from Will Wizard® include ‘Crisis Provisions’ which come into effect when a beneficiary experiences some kind of personal or financial crisis such as a relationship ending, a mental breakdown, being sued or having a business fail.

 

The Executor is able to temporarily remove the beneficiary as trustee (the controller) of their testamentary trust, further distancing them from their inheritance when it could be under heightened risk from third party claims.

Guardianship Provisions

 

Will Wizard’s ‘Guardianship Provisions’ strengthens the probability that the right people are chosen to take care of your children should you be unable to.

Controlling Age

Comprehensive Testamentary Trust Wills from Will Wizard® provide the option to nominate a more mature controlling age that a beneficiary must obtain in order for them to gain full autonomous control over their inheritance, rather than the tender age of 18.

 

This is an important protection that allows young beneficiaries to have access to their inheritance for education, housing and welfare purposes while limiting the risk of young beneficiaries making poor decisions with their inheritance.

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Dispute Avoidance

How does Will Wizard® help protect against family disputes?

Online Form

 

Will Wizard’s online form will gently guide you to make decisions that will help to minimise the likelihood of family members or other dependent beneficiaries disputing your Will.

 

Disputes can cost your estate (not the parties engaged in the dispute) hundreds of thousands of dollars.

Minimising the chances of a dispute is ultimately the responsibility of a the Will Owner (you), but so long as you understand your responsibility to your spouse or partner, your children (from both current and previous relationships) and any other dependent beneficiaries, then the chances of a dispute can be greatly minimised.

Equalisation Provisions

Will Wizard’s Inheritance Protection Wills also include clever equalisation provisions that help to protect against two common ways disputes arise;

 

Super Death Benefit Payments

 

If a Will Owner dies and one of their children is a under 18, or a student, or a financial dependent, while the other children are working full-time, they would receive the entire superannuation death benefit. This would then ruin the Will Owner’s hopes for inheritance equality among their children, creating a very real scenario where a dispute could occur.

Beneficiary Loans

 

If the Will Owner gives one of their children a loan (for example the deposit for their first home), the other children might feel hard done by when the estate is split equally between them instead of the loan being taken into account, which could easily lead to a damaging and costly legal dispute.

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Executor Guidance

How does Will Wizard® help executors?

Comprehensive Testamentary Trust Wills from Will Wizard® are essentially a detailed plan that provides executors with options to help them transfer wealth to your loved ones in the most protected and tax-effective way possible.

To complement this plan, the Will Wizard® portfolio also includes a document titled ‘Guide for Executors’ which assists executors to understand their role and responsibilities. 

 

Furthermore, every Will Wizard® portfolio comes with a clause by clause, plain-language summary of the Wills to aide in this understanding.

While we also encourage executors, Will Owners and beneficiaries to seek professional legal advice, these key documents provide further understanding and increase their ability to make an informed decision.

Standard 2-5 page Wills provide no such planning and far too often leave a complicated mess for executors to decipher and manage.

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