Yes, you do need a testamentary trust

People who know me personally know I have strong opinions – the ‘Andreyev Rant’ is a thing.

But for most of my professional life as a lawyer, I have very deliberately tried to keep the rant in check. I have avoided telling my clients what to do. Instead, I have worked really hard to find out what you want to achieve, and then I have presented you with ‘options’ in a dispassionate way. I have expected you to make your own choices.

While this has worked really well, and most (if not all) of our clients are the sort of people who take responsibility for themselves, I have been coming to the realisation that one of the reasons people come to us is because they genuinely want our ‘opinion’ (not just the ‘options’). They want us to be ‘opinionated’. In many cases, they want us to tell them what to do.

So here goes – You need to have a testamentary trust in your Will!

Most people who advise on testamentary trusts talk about the ‘tax benefits’. This emphasis is plain wrong.

Yes, there are plenty of real tax benefits than can be associated with a testamentary trust (and I will touch on them shortly). But if these tax benefits were taken away (which they won’t be), we would still be including testamentary trusts in most of our Wills.

Why? Because, a simple Will (without a testamentary trust) is more likely to do harm, and to lead to family disharmony, than one with a testamentary trust.

Are you convinced? Call us on 1300 654 590 to discuss using testamentary trusts in your estate plan.

So what is a testamentary trust? I liken it to ‘bubble wrap’ for your assets.

A testamentary trust is best explained by what happens if you don’t use one.

The alternative to a testamentary trust is to give your assets to your kids ‘outright’. If you and your partner die when your child is 12 and you don’t use a testamentary trust, your child will get their hands on all of your assets (including your super and your $1m+ in life insurance) on their 18th birthday.

Do you know what kids do with $1m+ on their 18th birthday? Particularly kids who have not had a parent for the past 6 years? That’s right, they go crazy. We have actually seen this happen on more than one occasion, and it is not pretty.

So the first reason you need a testamentary trust is to defer the time when your kids get their hands on your estate to a time when they are more likely to make sensible decisions. For example, at 25 or 30 years old (at the earliest). In the interim, the trustee of the testamentary trust can ‘mentor’ your children about how to deal with money.

Set your kids up for success early. Call us on 1300 654 590 to discuss how testamentary trusts can be used to optimise your estate plan.

But there’s more. Let’s say that only you die, and your partner lives on. No doubt you intend for the assets that you have built up together to be passed down to the children you have had together? Unfortunately, if you don’t have a testamentary trust in your Will, that’s not usually how things pan out.

If your partner re-partners – and all partners re-partner – then there is a very high likelihood that some (or all) of your family assets will end up with the new guy or gal, or even the new guy or gal’s children. Without a testamentary trust, there is nothing in place that says your assets must go to your kids when your partner has finished with them.

Lastly, the tax benefits. Yes, they are real. But they only come into play if the assets in the testamentary trust make income, and if you have children under 18 who can receive distributions. If you have these two things, then you can distribute the income to the kids and take advantage of the tax-free threshold and the lower marginal rates of tax.

Wow, I hear you say, won’t the Government take those tax benefits away? Not likely. Why? Because you only get them if someone dies, and people generally do not kill themselves to potentially give a tax benefit to their grandchildren… To take away this tax treatment would penalise kids whose parents have died before the kid has reached 18. Hardly a vote winner.

So do you need a testamentary trust in your Will? Yes.

Call us on 1300 654 590 to have your Will reviewed and updated to implement testamentary trusts in your estate plan. You can thank us later.

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