The advantages of a beneficiary controlled testamentary trust Will

To provide your Primary Beneficiaries with the ability to take their inheritance in whichever way they choose, you might consider incorporating a Beneficiary Controlled Testamentary Trust (BCTT) into your Will. That way, after you die, a Primary Beneficiary can instruct the estate Executor to pay some (or all) of their inheritance, to any one or more of the following:

• themself absolutely;
• a Testamentary Trust that is controlled by them;
• a Testamentary Trust that is not controlled by them;
• any of their children or grandchildren instead of themselves; or
• another trust which they (or their descendants) are beneficiaries of (or control).

The terms set out in the Will give Primary Beneficiaries flexibility and options, including the ability to:

• control the activities and investments of their own trust if they wish;
• minimise tax, and, use the benefit of the concessional tax rates that apply to minors;
• retain their inheritance for their descendants for up to 80 years (or longer in States where there is no rule against perpetuity) or wind the trust up earlier;
• appoint another person or company to be the Trustee of their trust;
• appoint someone other than themselves or a company, to have the power to remove a Trustee and appoint a new Trustee of their trust;
• protect their inheritance from being lost through bankruptcy;
• protect their inheritance in the trust from having an inheritance claim lodged after their death;
• run more than one trust. For example, if a Primary Beneficiary has more than one child, they can run parallel trusts and nominate:
a). which assets go into the trust;
b). who the income beneficiaries will be from those you have nominated in the terms of the trust;
c). who the capital beneficiaries will be from those named in the terms of the trust;
d). who will be the Trustee of each trust;
e). restrict the terms of the original trust or any parallel trusts (however, they can never expand on the terms of the trust set out in the will);
f). specify which of their descendants will have control of the trust (and any parallel trusts), after the death of the Primary Beneficiary; and
g). create a protective trust for any descendants who cannot manage their own affairs.

During the continuance of their trust, the Primary Beneficiary has the power to:

• take some assets out of their trust and keep the remainder in the trust;
• pay assets and income to themself or any other person named as a potential beneficiary of their trust; or
• take all the assets out of their trust and wind up the trust; and
• create separate testamentary trusts.

If the Primary Beneficiary leaves their inheritance in their own trust, then upon their death the assets in their trust do not form part of their estate. Their chosen descendants then inherit the trust and take control of it.

Scammell & Co have experienced Wills and Estate Planning lawyers who can tailor your testamentary trust Will to achieve particular objectives for both your estate and your beneficiaries.

For further information on Scammell & Co's Wills and Estate Planning services please follow the link HERE

*This information is current at the time of publication. For accurate legal advice, please contact Scammell & Co on 08 8440 270.

When it comes to Wills and estate planning, there are benefits in putting a testamentary trust in place

The days of the basic three-page Will are gone, replaced with a modern estate planning Will offering beneficiaries the opportunity to hold assets in a Testamentary Trust (which can be managed by them), to ensure asset protection for your beneficiaries from creditors, relationship breakdowns and unnecessary taxes for generations to come.

Central to the modern-day Will is the variety of different Testamentary Trusts you can set up in your Will to deal with the individual needs of each of your family members, as well as increasingly complex family issues.

WHAT IS A TESTAMENTARY TRUST?
A Testamentary Trust is a discretionary trust established in your Will that only comes into effect upon your death. As the Will maker you decide on the rules and terms of the Testamentary Trust and these are included in your Will. After your death your Will becomes the Trust Deed.

The trust can hold estate assets such as investments, real estate, and cash, for the benefit of beneficiaries during their lifetime, or for a specified period. You may set up any number of trusts within the one Testamentary Trust Will, and each trust may vary in size, can be created using specified assets, a portion of your assets, or the whole of your assets, and have different conditions placed upon them.

A trust can:
• be flexible or non-flexible;
• be controlled by the beneficiary or by someone else;
• restrict the ability of any of the beneficiaries to control the activities and investments of the trust or give them complete control;
• continue for a period of up to 80 years if so required or be wound up at any earlier date if the trustee so decides;
• set out the terms; and
• separate the rules and establish more than one testamentary discretionary trust.

The client decides whether they wish to sacrifice the independence of the beneficiary to ensure that the inherited assets are protected and used sensibly for the benefit of the primary beneficiary and their family.

Testamentary Trusts were once viewed as the domain of the extremely wealthy but with the build-up of superannuation assets and the boom in house prices, many more people need to consider these types of Wills.

WHAT ARE THE KEY BENEFITS OF A TESTAMENTARY TRUST?
Testamentary Trust wills are designed to protect inherited assets while providing significant tax benefits through income splitting, and paying income to minors, and can help with the growth of inherited assets to a degree not possible with an ordinary Will.

Testamentary Trusts provide:
• Significant income tax-splitting opportunities.
• An extremely tax-effective future asset-building entity that can be used to maximise the future growth and value of inheritances.
• Flexibility and choice for your beneficiaries - it is possible for each beneficiary to retain control of the inheritance received via a testamentary trust.
• Protection of the inheritance assets against creditors.
• Protection of your assets to ensure that only your descendants receive your assets.
• Protection for your beneficiaries who are unable to manage their own assets, are in a high-risk occupation; or intellectually challenged or a risk of bankruptcy.

WHAT ARE THE TAX IMPLICATIONS FOR MINORS AS BENEFICIARIES?
If minors under the age of 18 receive income outside of a Testamentary Trust, they are taxed at penalty rates of;
• 66% on income between $417.00 and $1,307 and
• 45% thereafter

If minors receive income from a Family Trust, they are taxed at penalty rates.

If minors earn income from a Testamentary Trust established in a Will, they are taxed at the normal adult tax rates.

THREE GENERATION TESTAMENTARY TRUST
The most common Testamentary Trust these days is the three-generational Testamentary Trust.

The flexibility of a three-generational Testamentary Trust means it can cater to the individual needs of each of your beneficiaries and provide not only for your children, but also your grandchildren and great-grandchildren.

HOW ARE TESTAMENTARY TRUSTS STRUCTURED?
A Testamentary Trust has three essential elements: the trust assets, the trustee, and the beneficiary. In some cases, an appointor is also nominated.

The trustee has legal control of the trust and its assets and manages them in accordance with the Will. The trustee also has the authority to determine how trust income (such as rental income from an investment property) is invested, and which (if any) of the nominated beneficiaries receive income and capital distributions each financial year. The trustee (or multiple trustees) is often the deceased’s surviving partner or adult children. It can also be a trustee company.

The beneficiary (sometimes referred to as a ‘class of beneficiaries’) is often one or more family members including, a spouse or partner, children, grandchildren – even extended family members. A trust beneficiary can also be a company or the trustee of another trust – although this may result in taxation disadvantages. The trustee may also be a beneficiary, but not the sole beneficiary unless there is more than one trustee.

The appointor has ultimate control over the trustee, with the authority to appoint and remove the trustee from the trust at any time.

Testamentary Trusts, while largely promoted as a tax saving mechanism have many other advantages. Their inherent flexibility makes them worthy for consideration in your overall estate planning strategies.

Scammell & Co have experienced Wills and Estate Planning lawyers who can tailor your Testamentary Trust Will to achieve particular objectives for both your estate and your beneficiaries.

For further information on our Estate Planning services, please follow the link here

*This information is current at the time of publication. For accurate legal advice, please contact Scammell & Co on 08 8440 270.

Common questions about Wills and other estate planning documents answered

Wills are legal documents that name the people you want to receive property, possessions and assets that you own at the date of your death – these people are known as your beneficiaries. Wills are the only way you can ensure your assets are distributed in the way you intended after you pass away. Therefore, Wills are essential if you are concerned about who will receive your assets and it is particularly important if you have a family, or other dependants.

What are valid Wills?

Wills are only valid and accepted by the court if they are in writing and signed and dated (preferably every page) by the testator (the person making the Will) in the presence of two independent witnesses (aged 18 years or over). The witnesses must also be named on the Will and co-sign and date the Will in the presence of each other and the testator. To avoid a conflict of interest, a witness should not be a beneficiary to the Will. Only then is a Will put into full effect by a grant of probate. If a Will is not drafted and duly executed properly it may be set aside and your property distributed according to the rules of intestacy (the condition of your estate if you do not have a valid Will), which may conflict with your wishes.

Another important consideration for anyone wanting a Will is that it should be drafted and signed by someone of sound mind, memory and understanding – without any undue influence from other people.

Once a Wills is complete it should not be added to, deleted from, pinned, stapled or even have a paper clip attached. It is highly recommended that an experienced Wills and Estate Planning lawyer be consulted if an intended change is to be made to a Will because even the simplest change must be correctly done or it may have adverse results – potentially invalidating the Will.

Should I update my existing Will?

A Will should reflect your current wishes and circumstances. As a guide you should review your Will every few years. Changes to your circumstances can include events such as marriage, separation or divorce; you may have become a parent or grandparent; bought or sold assets; your financial situation may have changed significantly; you may have retired; or either a beneficiary or your appointed Executor may have died.

What is Probate & how does it work?

Probate is the legal process to validate the Wills of deceased persons to fulfil their wishes that are to be carried out by the Executor named in the Will. If awarded, a Grant of Probate is the court’s official recognition of the validity of a Will and who the Executor of Will is.

Probate may be required when a person has passed away and leaves behind certain kinds of assets. For example, if there is a large sum of money in a bank account and the deceased was the sole account holder, a Grant of Probate may be requested by the financial institution in order for the Executor to access the account.

What are the duties of the Executor?

An Executor is someone nominated in a person’s Will whose responsibility it is to administer the deceased’s estate. Many testators elect a friend or close relative to be the Executor of their Will. This nomination is typically regarded as a mark of respect and reflects a high degree of trust which the testator has in their abilities. However, the Executor’s duties are onerous and can be very time-consuming and often requires professional advice and assistance. If you have been appointed an Executor, you should seek-out the efficient services of a lawyer experienced in the administration of deceased estates.

What is a Power of Attorney?

A Power of Attorney is an important document that allows you to appoint one or more people to make decisions concerning your legal and financial matters while you are alive. A Power of Attorney ceases upon your death, at which time your Will comes into effect.

There are two types of Power of Attorney to consider:

A General Power of Attorney is an authority given to someone to deal with your financial and legal affairs on your behalf from the time you execute the document. For example, it allows you to appoint someone to sell your house while you may be overseas, invest your money or operate your bank accounts.

An Enduring Power of Attorney operates when you become legally incapacitated. For example, if you have lost mental capacity due to a stroke, dementia or brain injury. Both can be combined into a General and Enduring Power of Attorney should you wish to appoint someone now to act on your behalf and continue to act should you lose mental capacity.

While a Power of Attorney deals with your financial and legal issues, it does not cover personal aspects of your life such as health care, accommodation or lifestyle issues. These are covered by an Advance Care Directive.

What is an Advance Care Directive?

Advance Care Directives have replaced Enduring Powers of Guardianship, Medical Powers of Attorney and Anticipatory Directions. While your Enduring Power of Guardianship may still be valid, an Advance Care Directive allows you to set out in detail your wishes regarding future healthcare and lifestyle decisions, such as preferred living arrangements. It also enables you to set out legally binding refusals of healthcare.

An Advance Care Directive enables you to appoint someone (often your loved one) as your Substitute Decision Maker to make these decisions on your behalf when you are unable to make them yourself. Therefore, being able to make legally binding decisions now regarding your healthcare enables you to provide instructions for your loved ones to follow in what often is a traumatic and emotional time for them.

You may for example, include in your Advance Care Directive, to not be kept alive on life support or to be resuscitated in certain circumstances. Should this occur, these directions are then followed through by your Substitute Decision Maker, giving both yourself and them peace of mind.  It may also reduce the possibility of conflict between family members as you have appointed a particular person to carry out your wishes.

Scammell & Co is one of South Australia’s leading providers of Wills & Estates services. We have established an enviable reputation for quality and thoroughness. No matter how simple or complex your estate planning needs are, our lawyers have the expertise to provide customised Wills and Estate Planning documents. Call our team today on (08) 8447 4466 or contact us via the enquiry form to discuss how we can assist you.

*This information is current at the time of publication. For accurate legal advice, please contact Scammell & Co on 08 8440 270.