Testamentary Trust

Hi All

I am exploring possibility of a testamentary trust to be enacted via a valid will upon mum’s passing to safeguard assets for our two children (7 &4), reduce CGT and SD. Asset protection is also a consideration. Mum has one PPOR worth $1m and an IP worth $550k (purchased in 1993 with estimated 400k CGT), ungeared.

My thinking would be to use the income from the trust distributed to my children to finance the purchase of another substantial property directly in my name and obtain negative gearing benefits or would it make more sense to simply buy the property in the trust and run it neutral and simply build the asset base over time?

Conscious of land tax surcharge here in Victoria and cost to administer the trust, however the trust would pay for itself if we decided to sell the IP in the trust vs in my name by a substantial amount.

Welcome any thoughts on this strategy.

One last thing, what is the best way for the children use the trust to buy their own PPOR in their names without selling property in the trust, I read something about loans via the trust, but couldn’t find a clear explanation.

If there are any books anyone can recommend on Trusts that would be great too, thanks in advance.

 

TDTs are great, I have written about 100 legal and tax tips on wills here.

are you proposing to take your children's money yourself? Some legal issues there.

If the will allows it the trustee can lend beneficiaries money. But the trust has to have teh cash to lend.

seek legal advice - from a solicitor

 

Although your children are not over 18 years of age, you never know what the ATO may view any such arrangement in the future.

ATO ALERT ON PARENTS BENEFITING FROM TRUST INCOME OF CHILDREN

 

Thanks Terry, can you expand or highlight where answered before on forum?

Also can you have two to three trusts each individually holding real estate to stay below land tax surcharge threshold here in Vic?


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trusts distributing to children - new ato alert

Again this particular alert relates to children over the age of 18 but with the ATO you never know which particular aspects will be looked at at some future point.

 

This is about s100A but that doesn't apply to minors.

I was meaning the general legal principals about using money belonging to someone else. If its their money you shouldn't use it to enrich yourself.

 

Yes. That was the issue I was hinting at with the links to the ATO.

 

Pigging backing on this thread.

Generally, how much net assets do you need to have before considering setting up a testamentary trust for yourself? From my research I'm hearing anything from 500k onwards, keen to hear other people experiences and thoughts.

 

$0 upwards

The TDT is not for yourself but for others, assuming you are the testator. So the question should be how much does your estate have to be to justify it?

This may include non-estate assets such as super death benefits which includes life insurance inside super.

 

Yes this was my actual question, apologies if this wasn't clear before. From my initial research, anything greater than 500k net assets is considered justifiably to set up a testamentary trust however I'm keen to hear your thoughts @Terry_w if you have any views on this.

Will a testament trust need to be adjusted regularly say every 5 years? I would assume it the testamentary trust should be reviewed each year and any major life events happened should be adjusted accordingly.

 

The trouble with this question is most people don't know when they are going to die so its a hard thing to plan for. But with every day that passes the chances of waking up the next day slightly diminish.

I usually encourage clients to make the testamentary trust optional so if it is not needed at the time it can be bypassed. I charge the same cost for a will with or without a TDT so there is no real downside.

There should be no need to adjust a testamentary trust once established unless there is some change in law such as the land tax for foreign persons. There are also legal issues with this as well as it is a person's will and there are rules against delegation of testamentary powers.

 

Good to hear you provide a fixed fee whether to set up a will with or with a testamentary trust. I have seen other estate planning lawyers quote up to 2k more if setting up a testamentary trust.

In the event the beneficiary need to decided whether to set up a testamentary trust or not, would they consult a accountant, financial planner or estate planning lawyer? Or a combination or all 3?

 

At the time of making the will only a solicitor.
After the death the beneficiary could consider consulting a solictor and perhaps a tax advisor if the solicitor couldn’t cover that either. There are no financial products involved so no need for a financial planner, but they can give general advice on what the trustee could consider investing in.

I charge close to $3k for a will, with or without a TDT. Half price for loan clients of our other company though.