Article of Interest on Wills & Estates

WILLS AND TESTAMENTARY TRUSTS 

What is a testamentary trust, you may ask. A testamentary trust is a trust established in someone's Will which only comes into existence when that person dies. The trust is controlled by the Will of the deceased. The Will includes how the gift in the trust is to be managed and used. The Will is like a rulebook.

The controller of the trust is known as the Trustee and is appointed by the deceased in the Will. The trustee can be the beneficiary of the trust or someone else. There can also be more than one trustee which can provide checks, balances and safeguards if necessary.

Testamentary trusts are used for a number of very good reasons, mainly:

•  To protect assets from attack by outsiders;

•  To protect assets from the beneficiaries themselves;

•  To create tax benefits for beneficiaries.

Adrian had an alcohol and gambling addiction. His father Arthur provided for Adrian in his Will by leaving him $400,000.00 in a protective trust which was to be managed by his brother and sister. (Well done Arthur).

Gary has left his daughter Mary $450,000.00 in a testamentary trust. Mary had been living with Tom for six years. Mary's brother Mark was the Trustee of the trust as Gary worried about Mary's relationship. The relationship between Mary and Tom broke down. Tom made an application for property settlement. The $450,000.00 received by Mary from Gary's Will was protected by the trust. It was not controlled by Mary. The $450,000.00 was taken into account as a resource available to Mary but it was not available for division between Mary and Tom. (Clever Gary.)

Elizabeth inherited $500,000.00 from her mother Phillipa. The gift was protected in a testamentary trust. The other beneficiaries of this trust were Elizabeth's two minor children. The income from the trust and the capital could be split between Elizabeth and the two children by the trustee who was, in fact, Elizabeth. Elizabeth had a very well-paid job and the ability to split income between her and her children meant Elizabeth was not tipped into a higher tax bracket; the children received tax-free income up to the tax-free threshold as if they were adults, and the benefits to Elizabeth's family by the generosity of her mother were maximised.

Your Will can simply pass on your wealth in a very simple, open fashion; or, you can protect and maximise the benefits you pass on to your family by the use of testamentary trusts. Testamentary trusts should be explored within your estate plan with the assistance of your Lawyer.

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