superannuation proceeds trust vs testamentary trust

Can anyone tell me what the differences are between these two trusts (established via will) where the beneficiaries in the will are limited to persons who are death benefit dependents as defined by tax law?

I'm assuming the establishment of a testamentary trust(s) via a will in this situation would have broader application (other than for superanuation death benefits) - but would one trust be sufficient?

 

My understanding only. Superanuation proceedes trust is, in my Will, is a sub- trust and my death benefits nomination is for benefits to be paid to my Estate or representative. From there it's distributed in the most tax effective manner so that on a after-tax basis my beneficiaries receive roughly the same amount ftom the Estate.

Have a think about two beneficiaries both on $70k pa. One has big HELP debt and no health insurance and the other has no HELP debt and has privare health insurance. What is the after-tax outcome if both receive, say, $300k from the super? Can the amonts be altered so the after-tax income is appoximately the same? Fairness isn't necessarily dividing the procedes in equal parts.

My thinking but my brain is a bit mushy for a variety of reasons

 

Any trust set up in a will is a testamentary trust.
The ideal is a testamentary discretionary trust (TDT) which is just a discretionary trust in the will. Income can be streamed out to a wide range of beneficiaries with lots of advantages.

If the deceased's super benefits are paid to the estate (they not always will be), then these funds can pass into the TDT set up under the will, but there will be adverse tax consequences where the potential beneficiaries of the TDT include non-dependants under the tax act. So to avoid this I set up a super proceeds trust as a subtrust under the TDT so that the only beneficiaries of this subtrust will be dependands and thereby the super benefits will not be taxed.

 

So there's no escape from the non-dependants being taxed even in a TST/Super sub-trust arrangement?

 

Not after death.

 

Thanks @SatayKing and @Terry_w

Also for others, I just noticed that @Terry_w already has a legal and tax tip that cover SPTs and taxation on super at death

Legal Tip 165: What is a Superannuation Proceeds Trust (SPT)?
Tax Tip 162: Taxation of Superannuation Proceeds Trusts

3 Strategies to Save Tax on Super at Death

 

Is it normal for a will to simply allow for the establishment of one or more Testamentary Trusts and Superannuation Testamentary Trusts ie a few paragraphs of text, and no trust deeds?

Ie Trust deeds don't form part of the will and are left as an exercise for the executors?

 

No. Deeds should be included. My tdt wills are about 60 pages long

 

https://kells.com.au/assets/Info-Sheets/infosheet-t.t-wills.pdf
"The beneficiary can also choose to leave the trust ‘inactive’. No assets or investments are held in the trust but the beneficiary (or a future beneficiary – grandchild) may ‘borrow’ funds from the trust interest free and purchase an investment. Later, the trust can be activated by repaying the loan."

How is it that a beneficiary can 'borrow' funds from a trust that has no assets?

 

It would not be possible.
But perhaps they mean a trust that holds cash but doesn't invest or trade.

 

Ah so the trust has come into existence but the assets are immediately loaned out to a benificery interest free. I presume inactive means no need to operate, file tax returns etc.

I can see how that might be useful in some circumstances.

Thanks @Terry_w

 

It doesn't necessarily have to be immediate.
Death could happen and the trust set up and then property held in the TDT, sold many years later and the income distributed by the capital held as cash and then lent to the beneficiary to buy a main reisdence in the beneficiary's name. Interest free loan with the trust taking a mortgage.

Great asset protection upon bankruptcy and even family law disputes - to a degree.

There would be a tax return needed for the trust, but it would basically be a nil return.

see
Legal Tip 215: Strategy of Borrowing from a Testamentary Trust instead of Winding it Up Legal Tip 215: Strategy of Borrowing from a Testamentary Trust instead of Winding it Up

 

Interestingly the lightyeardocs Last Will and Testament doesn't include the deeds, at least not based on this public your tube video from Grant.

You can see it all for yourself (skip to 51:06), but as a summary (paraphrased)

Testamentary Trust Powers

• Power to create a range of trusts under will with each to be a TT with the afforded tax concessions for beneficiaries pursuant to Div 6
• Any TT shall be established by executor with a broad range of terms and conditions including as follows
  • 80 years or perpetuity
  • trustee to be executor or primary beneficiary
  • beneficiaries to include primary beneficiary plus children, associated companies, trusts of primary beneficiary
  • trustee power on specific income and capital
• Receiving SPD may be held on a separate trust with income and capital beneficiaries to Death Benefit Dependents as a subset of the General Beneficiaries of the TT

It then goes on to define (not in much detail) some other esoteic stuff:

• Parallel TTs
• Amalgamated TTs
• Restricted TTs
• Split Fixed TTs

Strange that this will doesn't appear to include the Trust Deed.

 

Yes very

 

There is also a rule which prevents a person delegating their testamentary intentions, i.e. you can't let others decide who you leave for you