A testamentary trust is a trust created under a will. It can be one or more trusts created when as a result of a deceased estate.
There are many advantages of using a testamentary trust including
. asset protection . protection of assets for children until they are capable of managing those assets . tax planning opportunities
Asset Protection The asset protection benefits can be significant. If assets are passed onto individuals as part of a deceased estate and they are in high risk occupations or industries then those assets will be held by the individual and subject to any claims made in the future by potential creditors. A testamentary trusts provides a level of protection over those same assets as they are held by the trustee for the benefit of the beneficiaries. Therefore the individual does not directly hold the asset.
Similar issues can arise where a parent dies and the children are under the age of 18. Some family groups want to be able to pass their assets onto their children after death but sometimes this event occurs much earlier than expected. A testamentary trust can allow those assets to be held on trust for the benefit of the children but the trustee of the trust can make decisions regarding the assets of the trust until such time that the children are able to maturely make decisions regarding these investments.
Tax Planning One of the main tax advantages of income earned by a testamentary trust is that income directed to children under the age of 18 is taxed at the adult marginal tax rates. Ordinarily income distributed to children under the age of 18 is subject to special rates of taxation which over a certain amount Mark Jackson City Edition Jersey , which is very low, is taxed at the top marginal rate being 46.5%. This can be a significant tax planning opportunity for income received by a testamentary trust that is otherwise generally not available.
Your advisers need to be aware of the anti-avoidance provisions and any strategies put in place do not breach any of these provisions.
This is a complex area of law and requires both a legal adviser and tax adviser to assist with setting up a testamentary trust and ensuring that when in place it is appropriately administered.
Call Omega Partners on (02) 8211 0429 if estate planning is of importance to you and your family.
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