Main tax considerations if setting up a testamentary trust

hi
Were planning on setting up a testamentary trust thru our will for our kids.
From reading earlier posts I understand the benefits of setting up the testamentary trust as discretionary for tax purposes.
Are there any other tax considerations/ benefits to factor in before putting this in motion...

 

Land tax. A single testamentary trust vs 1 per child might make a large difference in land tax. Even where they are split by kid you can still have land tax issues. We had a client who kept in respective kid's testamentary trusts until they got the land tax bill. It cost them tens of thousands in stamp duty to get the properties out and into other entities but it was still worth it.

 

As RPI says Land tax is the biggie not considered. If you leave a NSW property to the trustee of a discretionary trust there will be land tax even if your children live in it as the main residence. The way around this is to set up a life interest for the child which gives them the right to occupy the property.

You can also have the trust as optional in the will. This reduces asset protectiont though.

Or just allow one property to pass directly if they will live in it - at the child's discretion - and the trust to the trust.

The section of the tax act which allows chilldren to be taxed as adults is s102AG ITAA36. 'excepted trust income'

artificially injecting funds to the trust after its formation - the income from this will not be taxed as 'excepted trust income'

Heaps of other factors to consider depending on what sort of assets you will be leaving - asset protection on bankruptcy, asset protection on divorce of children, death of children, superannuation proceeds, estate planning, appointor roles, trustee roles etc

See some of these discussed in my legal tips.

 

Main tax consideration is when the trust ends too

 

Keeping assets in the bloodline are a primary driver for most of my clients.

The tax benefits are a nice incentive but generally not the driver.