Estate planning for younger children may seem at odds with our understanding of when a Will for instance, needs to be considered, but in this post we consider the special needs that surround the planning aspects when young children are likely to be impacted.
Using a Testamentary Trust to split estate income with young Children
An Estate Planning strategy that has grown in popularity in recent times is the use of a testamentary trust(s) in the drafting of a Will. Where young children (even grandchildren) are likely beneficiaries of the estate this vehicle can be used to good effect.
The testamentary trust has been shown to add flexibility to an estate’s administrative outcomes, but it adds a level of cost and complexity that suggests that if taxation benefits are the primary objective to using such a trust, then the capital available to the trustee should be of sufficient quantum to warrant the effort and expense.
Who can benefit from a testamentary trust?
Situations where a testamentary trust could prove beneficial include –
- Families with young children
- Financially vulnerable families (on the loss of a parent/ carer)
- High net worth estates where minimising tax is important.
How does a testamentary trust work?
A testamentary trust is simply a trust established by the testator’s Will, activated as a consequence of their death. We have mentioned features and benefits of these trusts in previous posts (providing flexibility; and protection). Some of those are repeated here –
- Rather than all the deceased’s assets being distributed by their legal personal representative (the executor of their estate) upon death, some or all of the assets are held in trust for the benefit of a specific group of beneficiaries named in the Will (more than one testamentary trust can be established under a Will);
- As current taxation laws stand 1, trust income distributed to children as beneficiaries of a testamentary trust, of any age, will be taxed at ‘adult’ rates rather than the penalty rates that normally apply to minors’ unearned income;
- The trustee can have full discretion as to who receives trust income and capital; and if preferred, restrictions 2 can be written into the trust deed.
1 We recommend seeking professional advice before relying on this aspect when considering your estate plan.
2 Caution needs to be exercised when specifying ‘rules’ for testamentary trusts: Case Law shows that inequitable provisions can be overturned and set aside.
Where can I get help with Estate Planning?
The Continuum Financial Planners Pty Ltd Estate Planning service offers clients:
- working with them to prepare the detailed information required for their appointed estate planning specialist lawyer; who can then
- consider the client’s individual detail in light of their estate planning experience so as to design a plan appropriate to the client’s present and known likely circumstances; and where needed
- provision of access to our referral connections of such professionals (to whom we are happy to refer you to match their expertise with circumstances such as your own).
The experienced advisors at Continuum Financial Planners Pty Ltd are available to guide you through the preparation of the information to refer to a legal adviser (estate planning specialist) and where necessary, a taxation specialist, so as to ensure that all relevant detail is provided to them to ensure your estate planning strategies are determined as effectively as possible. For an appointment to get your estate plan started, call our office (on 07-34213456), or use our website Contact Us facility.
More about Estate Planning…
This is the twelfth in a series of 13 articles on the topic of Estate Planning: further articles in the series seek to bring clarity to some of the issues and implications to be dealt with in fulfilling the three key considerations of Estate Planning – getting the right amount of money, to the right beneficiaries and at the right time; and to prepare you and your family to understand the final plan when drafted. The remaining articles consider –
- Estate Planning outlined;
- Estate planning and flexibility in the modern Will;
- Asset protection using Estate Planning;
- Superannuation death benefit nominations and Estate Planning;
- Estate planning and Business Succession planning;
- Capital Gains Tax impact on estate planning;
- Estate planning and family loans;
- Estate planning and company-owned assets;
- Estate planning for a SMSF trustee;
- Estate planning and superannuation assets;
- Estate planning with a testamentary trust;
- Estate planning dependent on a valid Will.
(This series was first posted to our website over a period from late-2011 through early-2012; it has been refreshed, updated and re-posted in February 2015.)