Estate Planning and Testamentary Trusts

The essential components of estate planning include: 

• Will: A legal document that specifies who will manage your estate and how your assets should be distributed after your death, and naming guardians for minor children or dependents in the event of your death. 
• Trusts: Arrangements that allow a third party, or trustee, to hold assets on behalf of beneficiaries. 
• Power of Attorney: A legal document that gives someone else the authority to act on your behalf in financial or legal matters upon your request or if you become incapacitated. 
• Advance Care Directive: Instructions for your healthcare if you are unable to make decisions yourself, also referred to as a living Will or medical power of attorney. 
• Binding Death Benefit Nominations: Naming beneficiaries for superannuation accounts, life insurance policies, and other financial accounts. 
• Letter of Wishes or Statutory Declarations: A document left to your executor or a beneficiary that provides additional information or instructions regarding your wishes, or explaining the reasons for your estate plan. 

Our solicitors give our clients options and discuss asset protection, and tax benefits that may suit you and your family. This may involve ‘testamentary trusts’ (which is a trust created in the Will) that offer these asset protection benefits to ensure that our clients’ wealth is protected for the next generation. 

Unlike a typical living trust, a testamentary trust will be established upon the death of an individual, as per the instructions in their Will. These trusts are not just reserved for the wealthy; they offer significant advantages, including asset protection and tax benefits. For instance, they can provide a level of control over when and how beneficiaries, often children, access their inheritance. This can be particularly useful for safeguarding assets from beneficiaries’ potential creditors, matrimonial disputes, or poor financial decisions. Additionally, with income distributed among beneficiaries (especially minors), tax benefits can be realised. 

Testamentary trusts work by specifying in the Will how the trust should be set up and managed. Upon the death of the testator, the executor of the estate will create the trust according to the Will’s instructions. The trust assets are then managed by a trustee, who is responsible for managing the assets and distributing them to the beneficiaries as directed by the terms of the trust. This can include stipulations on how and when the assets are distributed, such as when a beneficiary reaches a certain age or achieves a specific milestone. The trust can be structured to provide income for the beneficiaries, manage assets for their benefit, and ensure the testator’s wishes are followed. 

Testamentary trusts offer several advantages: 

• Control Over Asset Distribution: They allow the testator to specify how and when beneficiaries receive their inheritance.
• Protection of Beneficiaries: They can provide financial management for beneficiaries who are minors, disabled, or otherwise unable to manage their own finances.
• Tax Benefits: Properly structured testamentary trusts can offer tax advantages, potentially reducing estate taxes. 
• Flexibility: They can be tailored to meet the specific needs and circumstances of the testator’s family and beneficiaries.