Tax benefits increase with this year's Federal Budget
For some years we have been recommending to clients that they
consider the use of Testamentary Discretionary Trusts when making
or reviewing their Wills.
Testamentary Discretionary Trusts offer a broad range of options
and benefits to following generations. Some of these benefits are
explained in our
Testamentary Discretionary Trust Plain English Guide. These
Trusts are very flexible and variations can be designed to overcome
a broad range of the concerns typically expressed by clients in
considering their Wills.
One of the main advantages of Testamentary Discretionary Trusts
for most Will makers is the potential tax benefits for your family.
Infant beneficiaries earning income under a Trust established by
the Will of a deceased person are taxed as separate tax payers and
are therefore each entitled to the normal tax free threshold.
The recent Federal Budget increased the tax free threshold to
$18,200.00 for each tax payer. As a consequence there is now even
more reason to seriously consider Testamentary Discretionary Trusts
in making your Will.
Let's say you want to benefit your son who has three
If you were to leave $1,000,000.00 to your son under your Will
and if he invested that money at 5% it would earn income of
$50,000.00 per annum. If your son was already earning a substantial
income he would be expected to pay tax on the additional investment
income at the rate of 45c in the dollar - $22,500.00 in all.
If on the other hand you left your estate to a Testamentary
Discretionary Trust for the benefit of your son and his family your
son could allocate one-third of the $50,000.00, (approximately
$16,600.00) to each of the children. This amount is under the tax
free threshold and accordingly no tax would be paid. The money
allocated to each of the children could of course be used for
schooling and other living expenses incurred by the children.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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