Testamentary Trust

Discussion in 'Estate Planning' started by karla_ver, 11th Aug, 2011.

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  1. karla_ver

    karla_ver New Member

    4th Aug, 2011
    Melbourne VIC
    Scernario regarding Mr Xs will.
    Mr X owns 2 residential properties in Vic, great land value, not so great rental value, and $200k in bank. Mr X has one child only, no wife, no siblings. Mr X wishes to leave his entire estate to his daughter, Mrs Y. Mrs Y is married, and has 3 small kids. As Mrs Y is sole heir of Mr Xs estate, Mr X has capacity and is happy to comply with Mrs Ys wishes in the will, so long as Mrs Y is in complete control of estate and that grandchildren or others are not named specifically in the will, for example in terms of life interests/ right to rental etc in the residential properties.

    Q. What kind of testamentary trust/wording would you recommend for Mr Xs will having regard to the following.

    a)Mrs Y envisages that her children, as adults, may wish to live in either/all of the 2 properties. In such a case, could Land Tax (at trust rates) or GCT (upon subsequent sale ) not apply.

    b)Mrs Y envisages that she herself may live in either of the two properties, again, can she claim PPR exemption, or does Land Tax (at trust rates) and CGT (upon subsequent sale) still apply. (Mrs Y is currently claiming a PPR exemption on her own house that she lives in).

    c)Can the will be drafted in such a way that Mrs Y decides what gets dropped into the TT or what she inherits outright?

    d)Can Mrs Y choose to accept probate in the form of TT, and later decide to wind up the Trust without incurring Stamp Duty? ie, if kids all working, have own place to live and no benefit in income splitting and paying Land Tax surcharges.

    e)If a general class of beneficiaries is included in the will, can a beneficiary be a corporate entity or a super fund. Or do beneficiaries in fact have to be natural persons.

    Any comments appreciated.:):)
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

    9th Jun, 2006
    Australia wide
    a) assets held in a trust do not get the CGT exemption. I don't know about land tax in vic, but it may be unlikely the land would be exempt for a discretionary testamentary trust.

    b) The will could be drafted to give her a life tenancy in either property and then the property be devised to a TT on her death.

    c) Yes. care has to be taken with asset protection though. Maybe best to give the executor the choice with advice from her.

    d) I don't think so

    e) yep.
  3. funkandjunk

    funkandjunk Member

    28th Jun, 2010
    You have to be very careful nominating super fund as beneficiary of a discretionary trust. Issues around distribution being taxed as non arms length income and therefore at 46.5%.