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Testamentary trusts
A testamentary trust is a trust that is established within the framework of a will. It only becomes operative on the death of the will maker (“the testator”) and the transfer of property to the trustee by the estate administrator.
Discretions
A testamentary trust normally contains wide discretions similar to those contained in an inter vivos trust. However, care must be taken to ensure the will maker exercises his obligation to choose beneficiaries. There must be compliance with:
- • the rule against delegation of testamentary power, if relevant; and
- • the rules regarding certainty of objects.
The rule against delegation of testamentary power has now been abolished in New South Wales (s 44, Succession Act 2006 (NSW)), Victoria (s 48, Wills Act 1997 (Vic)), Queensland (s 33R, Succession Act 1981 (Qld)), Tasmania (s 58, Wills Act 2008 (Tas)) and the Northern Territory: s 43, Wills Act 2000 (NT).
Advantages
Some of the advantages of trusts created by will are:
- • income distribution to minor beneficiaries where the minor is taxed on “unearned” income in the same way as an adult person;
- • the possibility of having undistributed income taxed at ordinary marginal rates applying to an individual rather than at maximum rates;
- • the flexibility of distributing income on a discretionary basis among different family members;
- • asset protection based on the law that no discretionary beneficiary has an interest in any particular trust asset;
- • some limited family law asset protection; and
- • the ability to shield assets from certain problem beneficiaries.
Capital Gains Tax
Capital Gains Tax rollover is possible through a testamentary trust to a beneficiary. Care must be taken when dealing with the main residence of the deceased.
Superannuation
Superannuation can be paid to and form part of the assets of a deceased estate. If paid to or exclusively for beneficiaries who would be tax advantaged if paid directly, then those tax advantages will normally flow through.
See Testamentary trusts.
