Join Australia's most dynamic and respected property investment community

Legal Tip 1

Discussion in 'Legal Issues' started by Terry_w, 19th Jun, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    No posts yet in the legal forum so to kick it off here is a tip.

    If you die without a will the intestacy laws will apply. Normally the spouse will take the assets of the deceased (if no children of another relationship), but if there is no spouse then the children will take the whole estate between them.

    A minor child is able to take their interest (in an intestacy situation) immediately (in NSW) due to s128 of the Succession Act
    http://www.austlii.edu.au/au/legis/nsw/consol_act/sa2006138/s138.html

    Imagine what a 15 year old could do with $1,000,000.

    To control things a bit more you could draw up a will and leave the estate to a trustee (of a simple bare trust) until the children reach the age of say 25. (or better yet a testamentary trust with control passing when they reach 25).
     
    jins13 and Singo like this.
  2. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,544
    Location:
    Sydney or NSW or Australia
    What's the difference between a TT & a BT?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    A bare trust is where A owns for B with no discretion. A 'testamentary trust' generally refers to the more complex discretionary or unit trusts set up in a will. However both a really testamentary trusts. What you need is a testamentary discretionary trust.


    A testamentary trust is any trust formed in a will so it could be a simple trust along the lines of:
    "I leave $500,000 to Scott to be held in trust until he is 18"
    or it could be
    "I leave $500,000 to the trustee specified in clause 12 under the terms below" and then go on for 30 pages.

    The trouble with the first one is that when Scott is 18 he can take the money and run - spend it all in one night perhaps. The second one may be a complex discretionary trust which may or may not give Scott control of the trustee position and there will be other potential beneficiaries other than Scott - his spouse, children, grandchildren etc.

    The benefit with the second one is many:
    1. Control from the grave to a certain extent
    2. General tax savings
    3. Ongoing tax savings with children being taxed as adults = approx $20k pa tax free per child.
    4. Asset protection on bankruptcy
    5. Asset protection on divorce that is greater than non will trusts
    6. Estate planning advantages
     
  4. Louis XIII

    Louis XIII Active Member

    Joined:
    18th Jun, 2015
    Posts:
    28
    Location:
    Sydney
    Thank you Terry.

    Can I ask, I know this will likely vary greatly depending on who you engage for this activity, though just want to get an indication on how much it would cost to setup a will/structure as described above for a family with 2 young dependants?
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,569
    Location:
    Adelaide, SA
    Could you use that to specify an annual ongoing figure (until empty?) Instead of a lump sum? Eg leave $1mil to John to be left in high interest bearing account and distribute $100k per year to him
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    I charge around $2000 with advice on superannuation succession and insurance issues. Less for clients of my other businesses. Multiple Tailored trusts too.

    I should point out also that you should not leave anything to an existing discretionary trust because you won't get the maximum tax benefits (generally). And some lawyers use a simple will and then just staple a 'normal' discretionary trust deed to it - this should be avoided.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    Yes. But you want to consider what could happen if the income is not high enough, or maybe much more than the $100k. Also low asset protection if John becomes bankrupt at some future as the income could be taken by the creditors. Capital would be protected.
     
  8. Louis XIII

    Louis XIII Active Member

    Joined:
    18th Jun, 2015
    Posts:
    28
    Location:
    Sydney
    Thanks Terry
     
  9. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    Terry can you recommend any books on trusts for beginners and in plain English?
     
  10. nucence

    nucence Member

    Joined:
    18th Jun, 2015
    Posts:
    6
    Location:
    Perth
    Thanks for the tip Terry. I have always appreciated your posts from a legal perspective. Now you have started, I think we should see another 51 tips in the next 51 weeks? :p
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    you could try my book with Coastymike (its free)
    Trusts and Tax for Property Investors E-Book
    http://www.propertytaxsolutions.com.au/

    I am writing another one more in depth on trusts concentrating more on the legal side. Maybe another year away.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    days not weeks! One per day.
     
    nucence likes this.
  13. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney