TYPES OF TESTAMENTARY TRUSTS
WHAT IS A TESTAMENTARY TRUST?
Testamentary trusts are trusts created by a Will to provide a greater level of control over the distribution of assets to beneficiaries. They do not come into effect until after the willmaker’s death.
There are tax, control and other advantages available through testamentary trusts that make them an effective estate planning tool.
The incorporation of testamentary trusts into a Will is not relevant to every situation but in many cases they offer valuable advantages over standard Wills.
Under the testamentary trust, the trustee of the testamentary trust will hold the assets on trust according to the terms of the trust specified in the Will. The beneficiaries of the trust will have the beneficial title to the assets. This structure provides a greater level of control over the distribution of the assets to the beneficiaries and in some cases also provides tax advantages.
TYPES OF TESTAMENTARY TRUSTS OFFERED BY TOPDOCS
To take full advantage of the benefits of a testamentary trust, it is important to indentify the type of testamentary trust suitable to the particular circumstances. Topdocs offers three types of testamentary trusts namely, discretionary testamentary trusts, lineal descendants discretionary testamentary trusts and capital protected testamentary trusts.
TOPDOCS DISCRETIONARY TESTAMENTARY TRUST
The most commonly used is a discretionary testamentary trust. The Topdocs discretionary testamentary trust is similar to a standard discretionary family trust as money or other assets are left to a trustee to hold on trust to make discretionary distributions to the beneficiaries.
Incorporation of a discretionary testamentary trust in a Will may be suitable if:
the estate of a willmaker will include, or is likely to be converted into, a substantial sum of money or income producing investments;
the willmaker wishes to leave all or a substantial part of his or her estate to an adult beneficiary who has children under 18; and
there is a reasonable possibility of that beneficiary investing the gift they receive to earn income over a period (rather than spending it all on non-income producing assets – such as a house to live in – or to pay down debt).
Discretionary testamentary trusts are designed to provide maximum flexibility and allow for tax-effective distribution of capital and income and may also permit beneficiaries to qualify for aged, disability and sole parent pensions, Austudy or the like, for which they would otherwise not have qualified under a normal inheritance. It also provides protection of assets for your beneficiaries from third parties in the event of bankruptcy or family breakdown. The nature and extent of the available protection varies and is subject to changes that may occur in the law from time to time.
LINEAL DESCENDANTS DISCRETIONARY TESTAMENTARY TRUST
The Topdocs lineal descendants discretionary testamentary trust is designed to protect the assets for the benefit of a beneficiary and their natural heirs only. These trusts are also sometimes called bloodline or pedigree trusts. The Topdocs lineal descendants discretionary testamentary trust is designed to ensure that control of the trust is retained by the natural heirs for additional family law asset protection purposes.
Lineal descendants discretionary testamentary trusts are often used:
to ensure that the property of the trust will remain only with the “blood relatives” of the initial nominated trust beneficiary;
where there is a concern that beneficiaries are likely to suffer marital problems;
where the willmaker wishes to maximise the chances that assets will provide for the education and upbringing of children or grandchildren; and
where tax planning with spouses may not be as high a priority as the protection of the assets from the Family Court’s reach.
TOPDOCS CAPITAL PROTECTED TESTAMENTARY TRUST
The Topdocs capital protected testamentary trust is designed to protect and preserve assets for the benefit of a beneficiary or for future generations.
Capital protected testamentary trusts are often used where:
there is a concern that a beneficiary is unlikely to be able to manage their own financial affairs; or
the willmaker wishes to maximise the chances that assets will survive the beneficiary for the benefit of a subsequent generation.
A capital protected testamentary trusts enables the willmaker to pre-determine some degree of control or influence over the way the assets can be used or accessed by the beneficiaries.
For more information about the Testamentary Trusts, please contact the team at Topdocs on 1300 659 242.