Any resolutions for your estate?
Let’s consider two aspects of estate planning: Protecting our assets and their value by use of a testamentary trust and gaining control of perhaps our most valuable asset – our superannuation fund, which is not part of a deceased estate and so is not distributed under the terms of the will (unless the trustee pays it to the estate).
Two reasons for including a testamentary trust in a will are to provide protection for assets and beneficiaries.
A discretionary testamentary trust allows the trustee to distribute all or part of the estate to beneficiaries.
Of course, the will maker can give certain directions, but the fundamental premise of the trust is that the estate assets, while they remain in the trust, are not under the ownership of any particular beneficiary, but are subject to the trustee’s discretion.
Recently, these trusts have expanded to include unit, fixed, hybrid and lineal-descendant trusts.
The type of trust can be chosen to meet particular circumstances. Briefly, benefits include:
Where the will leaves property absolutely to a beneficiary, the property is not protected from a trustee in bankruptcy.
However, a trustee in bankruptcy cannot access the assets of a testamentary trust under the Bankruptcy Act 1966.
Without a great deal of judicial consideration given by the Family Court, it is difficult to determine the Court’s attitude to testamentary trusts.
To date, assets held in a testamentary trust are regarded as a financial resource, but have not been the subject of division in a property settlement.
Although a financial resource potentially has some effect on the terms of a Family Court order, it is preferable to an absolute gift by will which will undoubtedly be at the disposal of the Family Court.
A testamentary trust can attract considerable tax savings under 102AG, Income Tax Assessment Act 1936 which provides that children are assessed at the normal tax rate (being $18,200 tax free and the balance at the normal marginal adult rates).
Will makers express concern about beneficiaries who are vulnerable, for example, a spendthrift or a substance-dependent child. The trustee is given the discretion to distribute the assets, which are held in trust, to a vulnerable beneficiary.
People with disabilities
It is not uncommon that people suffering from various disabilities are unable to manage properly their financial affairs. An adequate fund can be established that will not affect social security benefits received by the beneficiary.
Next month, your superannuation fund.
Dr John de Groot is Special Counsel at de Groots Wills and Estate Lawyers.