Legal Tip 369: Beneficiaries of Testamentary Trusts that are not even born yet

When setting up your will it would be a good idea to plan ahead yet. If you don’t have children you may end up having some after the will is signed and before your death – for men they can even come after death. Grandchildren might not be around yet, but if the will is drafted will these non-existent beings will be beneficiaries of a testamentary discretionary trust even though you may not even have children yet. A trust can last for 80 years so even a 20 year old doing their will now could end up having 5 levels of descendants benefiting from the income generated by assets you leave via your will, and this could be tax free or very low income tax for the whole 80 years!


So, think ahead a bit.


Example

Grandpa Simpson has one child and one grandchild, Bart, who is 5 years old when Grandpa dies. The will he left incorporates a testamentary discretionary trust which lists the beneficiaries as being descendants of himself and their spouses.

Bart fathers a child, Bart Jnr, when he is 20 years old. Jnr is a beneficiary of the estate and can earn $18,200 from the trust each year without paying tax. Soon after comes another kid. Then Jnr has a child when he is 20 and so on.

In 60 years time there may be 35 descendants of grandpa Simpson all benefiting from the trust. They gather at the grave site each year to toast the dead ancestor and burn incense thanking him for his foresight.

 

I recently encountered a issue with a trust. The founding person who had control had died. His wife was a beneficiary through the terms of the trust through her marriage to the deceased and she wasnt named. Issues surrounding clarrification had me puzzled and I referred her to a solicitor. Is a person who was married prior to someone who has since died a "spouse ??""...The deed didnt mention former spouse. They wished she had been a primary named beneficiary originally due to the way the deed was worded from a cheapie online deed a former accountant sourced. Some costly changes later all was sorted but it could have easily been a issue of concern. The words she used ring in my ears...""I just assumed....""

 

No, death ends the marriage!

 

Would that then end the trust if there's only a single beneficiary?

 

No, there are plenty of trusts with one beneficiary. It is also unlikely that a discretionary trust would have just one beneficiary unless it was a closed class trust