A testamentary trust is a trust that is created under a will and
comes into effect after you die. Here are five reasons why
testamentary trusts are a great structure to consider in your
Assets under a testamentary trust are held and managed by a
trustee (as appointed by you) for the benefit of your nominated
beneficiaries. As a result the beneficiaries do not own the assets
of the trust, rather, they are eligible to benefit from them. This
offers added protection to your beneficiaries' inheritance
should a beneficiary one day come under attack from creditors, for
example in a bankruptcy situation or in some cases, in a family law
Maintaining family wealth
A testamentary trust can be set up so that only your lineal
descendants or blood relatives may benefit from the trust, meaning
that your family wealth is protected for future generations.
Protecting vulnerable beneficiaries
In the same way that testamentary trusts can protect the assets
of the trust, they can also protect the nominated
beneficiaries. This can be achieved by appointing an
independent person to be the trustee of the trust rather than the
beneficiaries themselves. By separating the aspects of control and
benefit, an independent trustee can make prudent decisions for
beneficiaries who are either incapable of managing their own
affairs (due to spendthrift tendencies, addictions, age or
disability) or are vulnerable to exploitation.
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
rate. However, if a beneficiary of a testamentary trust under the
age of 18 years receives income from the trust, they are taxed at
adult rates, rather than the penalty rates that apply should income
be received by a child from a normal discretionary trust
established during your lifetime.
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 your family beneficiaries
each year in the most tax-efficient way, such as by distributing to
your beneficiaries who are not earning any income or to those who
are earning in the lower tax brackets.
The person named as an executor in the deceased's will has the right to arrange for the burial of the deceased's body.
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