Commonly, most people opt for an ordinary Will when planning their estate. They name their beneficiaries, make specific gifts, distribute their estate, appoint an executor, the list goes on. However, there is more than one option when making your Will. Allow us to explain.
Traditional Wills at a glance
A traditional or ordinary Will dictates how you would like your hard-earned property and assets distributed when you pass away. Beneficiaries either accept the gift in their own name or refuse it.
Testamentary Trusts at a glance
While there are different types of Testamentary Trusts, they offer the same things as a traditional Will but with more flexibility, choice and benefits. In fact, a Testamentary Trust is a trust established in a Will. The estate, whole or in part, is held in trust for the beneficiaries. The Will outlines terms, and a Trustee/s is nominated for carrying them out.
Benefits of a Testamentary Trust
The attraction with Testamentary Trusts is that they can protect assets and provide tax benefits. Some common reasons we see individuals opting for a Testamentary Trust include:
Marital breakdowns: A Testamentary Trust can help protect an asset from being considered as matrimonial property and subsequently divided. This is because the asset is owned by the trust and not the beneficiary, and therefore is considered a financial resource rather than an asset.
Bankruptcy: Like with the above, the trust owns the asset and not the beneficiary. Therefore, in instances of litigation or bankruptcy, it can be protected.
Tax benefits: A Testamentary Trust can be an avenue to potentially minimise the tax payable by beneficiaries. For example, income can be distributed more flexibly, and tax concessions may apply for children.
Withholding: Money may be held in trust for children until they reach a certain age.
A Testamentary Trust can offer a range of benefits for you, the maker of the Will, and your beneficiaries. First and foremost, it offers you more choice and control. For the beneficiaries, it offers protection from litigation, divorced partners and creditors. It can also minimise risk for beneficiaries who are not able to control the asset/s themselves. For example, for individuals who live with an impairment.
There are ongoing maintenance costs for Testamentary Trusts. For example, the preparation of trust tax returns. This is something to consider.
Every situation is different. Talk to a lawyer about your estate planning requirements, so you can make an informed decision about whether a traditional Will or Testamentary Trust is the right fit for your needs.
For more information about estate planning, including Wills and Testamentary Trusts, contact our team for a confidential and no-obligation discussion.