ARTICLE
14 June 2012

Testamentary Discretionary Trusts

CG
Coleman Greig Lawyers

Contributor

Coleman Greig is a leading law firm in Sydney, focusing on empowering clients through legal services and value-adding initiatives. With over 95 years of experience, we cater to a wide range of clients from individuals to multinational enterprises. Our flexible work environment and commitment to innovation ensure the best service for our clients. We integrate with the community and strive for excellence in all aspects of our work.
Clients should always consider the use of Testamentary Discretionary Trusts when making or reviewing their Wills.
Australia Family and Matrimonial

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.

For example:-

Let's say you want to benefit your son who has three children.

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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