Wills, estate planning and testamentary trusts
Having a valid will ensures that your assets and possessions are distributed according to your wishes after your passing.
However, simply creating a will is not enough — it's essential to update it regularly to reflect any significant changes in your life circumstances or the law.
The last time you updated your will may depend on a variety of factors. There are several life events that can trigger a will update, including:
Entering Into or Ending a Personal Relationship: marriage, divorce or starting or ending a de facto relationship for example
Birth or Adoption of a Child: Having a new child in the family may prompt changes to your will to ensure that your child is provided for in the event of your death
Death of a Beneficiary, Executor or Trustee: If someone named in your will as a beneficiary, executor or trustee passes away, you may need to update your will to reflect this change
Change in Finances: Changes in your financial situation, such as a large inheritance or the sale of a property, may prompt a need to update your will to reflect your current assets
Relocation: Moving to a new state or country may require changes to your will to ensure that it conforms to the laws of your new jurisdiction
Changes in Tax Laws can impact your estate plan and you may need to update your will to reflect these
Change in Personal Wishes: As your life circumstances change, your personal wishes and preferences may change as well. You may need to update your will to reflect these changes.
It's recommended that you review your will every few years, even if your circumstances haven't changed significantly. This ensures that your will accurately reflects your current wishes and that any outdated information or provisions are updated or removed.
With the recent increase in property prices your financial situation may be significantly different. Many leading estate planning lawyers are now recommending that Testamentary Trusts are incorporated into your estate plan.
What are the benefits of a Testamentary Trust?
A Testamentary Trust is typically prepared as a discretionary family trust established under the terms of a will. The assets that form part of the estate will be held in trust for a potential beneficiary until the termination of the trust (for example, in the event the beneficiary reaches a nominated age).
Benefits of establishing a Testamentary Trust under the terms of a will include:
Tax savings: For example, children under the age of 18 years who receive income from a testamentary trust are taxed on that income as adults, and therefore enjoy the normal tax-free threshold and marginal tax rates which apply to adults
An inheritance may be protected against creditors in the event of a beneficiary’s bankruptcy
In the event the beneficiary becomes part of divorce proceedings, an inheritance is less likely to be distributed pursuant to a Family Court order in property settlement proceedings if the trust is established and managed correctly
Offering protection against future business dealings of the beneficiaries
Families can ensure adequate funds are provided for a beneficiary and at the same time protect the funds by keeping them out of the beneficiary’s control
They assist in shifting wealth to future generations in tax effective manner and may save capital gains tax and even stamp duty.
Other issues to consider
The Trustees of the Testamentary Trust do not have to be the executors of your estate
The guardian of your infant children will need to work with the Trustees, so choose people for these roles who don’t have obvious conflicts of interest
You can make specific gifts of property to beneficiaries that take effect before the balance of your estate goes into the testamentary trust
Your creditors will be paid out of the estate before any assets go into the testamentary trust.
Tax considerations for planning your estate
In Australia, there are several tax considerations that should be taken into account when planning your estate. Here are four key points to consider:
Capital Gains Tax (CGT): When assets such as property or shares are sold, CGT may be payable on the increase in their value since they were acquired. In the context of estate planning, CGT can be a significant issue if beneficiaries are left with assets that have appreciated in value, as they may be liable to pay CGT if they later sell those assets. However, there are various strategies that can be used to minimise CGT, such as gifting assets during the owner's lifetime, or utilising trusts or other structures to hold assets.
Stamp Duty: In some states, stamp duty is payable when assets are transferred as a result of a will or intestacy. The amount of duty payable varies depending on the value of the assets being transferred and the state in which the transfer occurs.
Estate Tax: Unlike some other countries, Australia does not have a specific estate tax. However, assets in an estate may be subject to income tax, CGT or other taxes which can reduce the value of the estate that is ultimately distributed to beneficiaries.
Superannuation: Depending on how your super is structured, it may be subject to tax upon the owner's death. It is important to consider the tax implications of super when planning an estate, as it can have a significant impact on the value of the estate that is ultimately distributed to beneficiaries.
When it comes to estate planning, considering a trust and its tax implications always seek professional advice from Collins Hume as part of your decision-making process.
Please contact Collins Hume today if you wish to discuss your estate plan with a specialist adviser.