Making a Will is an important responsibility, particularly for parents of young children. A testamentary trust is a trust established by a Will and is widely used for asset protection and significant taxation advantages. The end result for your family can be substantial, as illustrated in the following example. John dies leaving behind his wife Jessica, and three young children. With the family home, an investment property, life insurance and superannuation, his estate is worth $3 million.

A Simple Will
Let’s say John had a simple will, and he left his estate to his wife, which she invested at 10% providing her with an income of $300,000 per annum. Jessica would be paying tax of $108,547 per annum on this income.

A Will with a Testamentary Trust
In contrast, consider if John left his estate to his wife as trustee of a beneficiary controlled testamentary trust with the beneficiaries of that trust being his wife and their 3 minor children. Assuming the $300,000 in income is distributed by Jessica between her and the 3 children equally, the tax liability in this scenario is $63,688 per annum.

The Potential Tax Savings
In this simple example, as a result of proper estate planning the annual tax saving to the family is $44,859. Your lawyer can advise you about how to set up a testamentary trust and whether it is recommended in your individual circumstances.

For advice contact Andrew O’Donnell on 02 9908 9888.