Testamentary Trusts

Testamentary Trusts, what are they and do they apply to me?

Today we will have an attempt at demystifying testamentary trusts and see if they have any relevance to your situation.

Once upon a time testamentary trusts (TTs) were the domain of the very wealthy. For a plethora of reasons that are irrelevant here they have been broadly democratised (read more economically accessible) in the last five years to the point where the question is “why not” rather than “why” utilise a TT.

What is a testamentary trust?

A TT is a form of discretionary trust brought into existence by a person’s will. There may be one for all beneficiaries or they may be one per beneficiary or any combination in between. The estate allocates funds or assets to these trusts. They can apply to simple circumstances, but come into their own in complex situations.

What is a complex situation?

  • Blended families or family breakdown
  • Beneficiaries under 18
  • Special need beneficiaries
  • Potential relationship breakdown
  • Financial issues, particularly bankruptcy
  • Substance or gambling addictions
  • Physical or mental disability
  • Self-employed or other high-risk people
  • Net worth of more than $1M (This is highly subjective)

Does it apply to me?

If you have an estate over $500,000, they probably do. Even if you don’t have a will, you do. Every state and territory has intestacy provision legislation. There are a set of firm and fast rules that the government, usually via the Public Trustee, applies to those who have made their own wills. The estate planning world abounds with horror stories of the intestacy statute. One I came across recently was the death of a 25-year-old woman who died unexpectedly. She had a substantial death policy within her superannuation and had made no will. Half of her estate was allocated to her Father who had abandoned her and her Mother not long after her birth.

TTs have great tax advantages, particularly for minor beneficiaries.

If you have updated your will for more than five years you should be asking yourself the question “am I overdue for an update”. The answer is yes.

If you would like to have a chat about this subject further, contact Warren Maris on 07 3483 0100

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