You can think of a trust as a kind of legal-container, in which assets are held safely for the benefit of one or more people. A testamentary trust is setup in a Will, which appoints one or more trustees to distribute income & capital to beneficiaries over time and with certain guidelines in place.
This offers several benefits over standard Wills. Incorporating a testamentary trust into your Will is not relevant in every situation, but our specialist Adelaide estate planning law firm can help you determine if this legal measure would be of benefit to you and your loved ones.
How a Testamentary Trust Works
There are different types of testamentary trusts. A discretionary testamentary trust generally names a class of beneficiaries from which the trustee can choose to distribute, meaning that the trustee controls the assets and maintains legal protections for them until they are distributed to the end-beneficiary. Sometimes the trustee only distributes income from invested assets to one class of beneficiaries, keeping the capital distribution for a separate class of beneficiaries. In this way, the income-benefit of an asset can be given to a person, without them (or their “predators and creditors” being able to get their hands on the underlying asset.
A protective testamentary trust is designed to preserve the assets, and it is often used when the beneficiary cannot properly manage his or her inheritance because of irresponsible tendencies, age-related issues or disabilities. A third party is typically named trustee in a protective testamentary trust, and the beneficiary is given a limited portion of the assets each year. This is also known as a Disability Trust.
Benefits of Testamentary Trusts
Testamentary trusts in Adelaide offer several advantages over standard Wills:
- Asset protection: When your assets pass directly to your beneficiaries in a standard Will, many people or entities can potentially lay claim to them and take them away from your intended beneficiary. These “predators and creditors” can include estranged spouses, trustees-in-bankruptcy, litigating relatives, and others. Testamentary trusts increase protection against such claims.
- Taxation benefits: In some situations a testamentary trust can reduce the amount of taxes beneficiaries must pay, by using legitimate tax minimisation strategies such as income splitting, in which capital gains, income gains and other income can be distributed among specific beneficiaries of the trust at lower tax rates.
- Keeping assets in the family: Testamentary trusts can help family wealth to stay within the family for generations to come, and so can help provide for your family. You might give your spouse control over your assets upon your death, but ensure that these assets ultimately pass to your children rather than your spouse’s new partner or children.
Unique Advantage of South Australian Trusts
South Australia is unique as being the only place in Australia (and one of the very few in the world) where the “Rule Against Perpetuity” has been abolished. Everywhere else, trusts can only last for a definite fixed period typically being the span of a life-in-being plus 21 years. However in South Australia, we can create a Thousand-Year Trust if we so desired (although this would be rare).
Testamentary Trusts in Adelaide
For expert guidance on testamentary trusts and Wills in Adelaide, call Genders & Partners as soon as possible to set up your free, no-obligation phone consultation. Our experienced Wills lawyers in Adelaide will advise upon your individual family situation and recommend an estate planning solution that is specific to meet your unique needs.
SPECIAL REPORT “7 Things You Must Know Before You Make Your Will”
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