What is a Testamentary Trust?

A testamentary trust is a trust that is created by a will.  The most common type of testamentary trust is a minor’s trust, where a gift for a minor is simply held for them by another person (the trustee) until they turn 18.

Other types of trusts can also be established under wills, including discretionary trusts.  Discretionary trusts, when not established under wills, are often called family trusts.   In this type of trust, the interests of beneficiaries are not fixed, and the trustee can choose when and to whom to make distributions of income or capital. The identity of the trustee, the potential beneficiaries and any rules about distributions are set out in the will.

The ability to decide where income is directed allows the trustee to reduce the overall tax paid on investments because distributions can be made to beneficiaries with lower taxable incomes.  Testamentary trusts can also distribute to minors without attracting penalty rates of tax.

Trusts can also be used to protect assets.  In a discretionary trust, beneficiaries do not own or have any direct entitlement to property in the trust so it is protected from creditors and, in some cases, from property settlements on divorce.

Including a discretionary trust in your will adds a great deal of complexity to it.   It also increases the cost of both preparing the will and administering your estate after your death.  However, where your estate is large enough produce ongoing income, or where your beneficiaries are at risk, a testamentary discretionary trust can be a very useful estate planning tool.

If you would like advice on including a trust in your will, contact Althea Willis at Hornsby Wills and Probate on 0410 485 277 or by email to althea@hornsbywillandprobate.com.au


Small Business Succession Planning

Do you run a small business?

Succession planning for your business is an important part of your estate plan.

Once your business has been established, a plan needs to be put in place to deal with what would happen to it if you pass away unexpectedly.  Over time, you may also wish to plan for your exit from the business when you retire.

The steps that need to be taken depend on the nature of the business, how its assets are held and the availability of employees or other officers to take control of its day to day affairs.

Appropriate planning can involve establishing structures such as companies or trusts so that control of the business can be easily passed to your chosen successor. You should also prepare a document dealing with practical matters including who will be responsible for notifying staff and clients if you pass away.  This document is sometimes called a business continuity plan, and can deal with arrangements for other crisis events such as the loss of the business premises.

If you would like advice about succession planning for your business, contact Althea at Hornsby Wills and Probate on 0410 485 277 or by email to althea@hornsbywillsandprobate.com.au

Family Trusts and Succession Planning

Do you have a family trust?  Trusts are often established for investment and business purposes and passing control of your trust is an important part of your estate plan.

Unlike most of your other assets, trust assets cannot simply be left to your children in your will.  How the trust is best dealt with depends the nature of the trust, the particular terms of the trust deed and your intentions in relation to the trust property.

Many family trust deeds will already have your children and their families included as beneficiaries and the most important decision can often be who should be placed in control the trust. This is particularly important in discretionary trusts where the trustee has absolute power to decide when and to whom to make distributions.

How to pass control of the trust will depend on when you wish to effect the handover, the terms of the trust deed and the identity of the trustee and appointor of the trust.  It is important that you obtain advice from a solicitor who is knowledgeable about succession planning for trusts to ensure that all documents are thoroughly reviewed and an effective transfer is made.

If you would like advice about transferring control of your family trust, contact Althea at Hornsby Wills and Probate on 0410 485 277 or by email to althea@hornsbywillsandprobate.com.au