Can have asset protection benefits for your beneficiaries, for
instance, by protecting from loss caused by bankruptcy and in some
Provides capital gains and income tax efficiencies.
Is prudent where a beneficiary to your will is either incapable
of managing their own affairs or vulnerable to exploitation.
A testamentary trust is a trust that is established under a
will. There are three major benefits which flow from utilising a
testamentary trust in your will:
Ability to split income;
Asset protection benefits; and
Other protective benefits.
Ability to split income
If a beneficiary receives their inheritance in their personal
name, they are taxed on any income and capital gains acquired from
the investment of their inheritance at their personal marginal tax
One major advantage of a testamentary trust is that income
distributed to a beneficiary under 18 years of age is taxed at
adult rates, rather than the penalty rates that apply should income
be received by a child from a normal discretionary trust set up
during your lifetime (45% for every dollar over $3,000).
By using a discretionary testamentary trust, any income gains,
capital gains and franked dividends earned from your estate assets
after you die, can be distributed among family beneficiaries each
year in the most tax-efficient way.
Asset protection benefits
Assets held on trust are afforded a general level of protection
from loss simply by virtue of being trust assets. By having your
will set up with testamentary trusts your beneficiaries benefit
from this added level of protection.
For instance asset protection benefits include possible
protection to your beneficiaries' inheritance should your
beneficiary one day come under attack from creditors, for example
in a bankruptcy situation.
Other Protective benefits
Other protective benefits flow from having a testamentary trust
in your will. These benefits apply in particular to beneficiaries
who are either incapable of managing their own affairs (due to
spendthrift tendencies, addictions, age or disability) or are
vulnerable to exploitation.
Such benefits are gained via the mechanics of how a testamentary
trust, upon your passing, is set up and managed. For instance, by
having a testamentary trust the assets of your estate are held and
managed by a trustee (as appointed by you) for the benefit of your
By separating the aspects of control and benefit in this way an
incapable or vulnerable beneficiary can be adequately
If you are doing a Will, or you are the executor of a deceased estate, consider what taxes and duties could be payable.
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