Testamentary Trusts

[Shirley]

Can anyone advise on testamentary trusts? We recently had a discussion with our solicitor who advised us to set up such a trust but we are a little sceptical.

We have 6 IPs (LVR approx. 50%) and 3 blocks of land (one will be our retirement spot). All are in our joint names and all properties with debt are cross-collateralised (I know, bad decision but we did not know much when we bought! Also, my husband is still to be convinced that crossing is such a bad thing as he feels we have done OK with this approach).

We have three adult children, feel we have been fortunate with our property purchases and want to pass on our good fortune to them when we finally 'kick the bucket' (a long way down the track, I hope!).

It seems to us that with testamentary trusts where a solicitor controls the trust, decisions are at the discretion of others and I suspect that there would be substantial fees involved. We'd like the tax savings that such a trust can provide, while leaving the control of the assets in our children's hands.

I will investigate these trusts further, but perhaps someone on the forum can advise?

Cheers
Shirley

 

[Mry]

I don't have a lot of familiarity with Testamentary trust other than its tax treatment. You'd need to ask a lawyer. From what I know:

*You are looking at paying $5,000-6,000 to get one going.
*You can make distributions to children under 18 at adult rates.
*The assets of the trust are not available at family court in the event of the divorce of one of the beneficiaries.

Certainly worthwhile, if you can forsee your death.

You should talk to your accountant and your children about if a testamentary trust suits your situation. It's a tool that you and your family can use if appropriate.

 

[Delta]

Can anyone advise on testamentary trusts?

......... Cheers
Shirley

This type of trusts is very useful for people who have children under the age of 18, due to punitive tax regime for children having income generating assets under the age of 18 (very high tax rates). A Trustee (under a testamentary trust that is set up by a Will) can manage the assets for them until they reach 18.

As your children are adult as you said, there is no need (but I am not a lawyer and you probably should do more research).

You should ensure that you have a Will that states who gets what assets.

Cheers.

 

[Pete]

I recollect - from reading about this a few years ago - that assets put into the testamentary trust did not trigger any capital gains tax liability whereas distributing through a will would do so. (For post 1985 purchased assets.) Can someone confirm/clarify?

I'd imagine, another difference with the trust is one might be able to prescribe the trust's investment strategy? Such as, the assets should be held. Whereas if left as an inheritance the receivers have no restrictions on what happens.

Note: I don't know about this stuff, and am posting to learn from others.

regards,
Pete

 

[Dazz]

Hi,

I just signed my will and testamentary trust set up last month, just before leaving Australia.

The document was about 25 pages long, and cost me $ 2,100 to set up.

It has every comceivable option / set of circumstances surrounding who dies, when, in what circumstances and the actions to be taken if and when.

The trust itself sits there and lies dormant until my death triggers it into life.

All of the varying assets get funnelled into it and the distributions and control are all fully set out. Nothing is left ambiguous.

I don't have the paperwork with me, it's back in Oz, so I can't answer specific questions.

hopefully it lies dormant for another 70 years, before springing into action.

 

[Shirley]

Hi Daz - thanks, this is roughly what our solicitor told us and the quoted cost was about the same. He also mentioned that future grandkids could be included as beneficiaries to take advantage of the tax benefits.

I guess it means you rely on whoever controls the testamentary trust to manage everything i.e. have any mortgages, rates, body corp fees, maintenance paid, handle property manager or tenants etc. and all those other things that property investors do. One needs to have faith in one's solicitor to do the right thing. What if they pre-decease you? Who then gets to control things?

Our solicitor advised us not to have one (or all) our children managing things. He said it's far better to keep them at a distance to avoid any future litigation.

Daz, have you put your beneficiaries down to manage your affairs (in 70 years time, of course!)? Is your trust just in the hands of your solicitor or do you have a group, say, solicitor, accountant, property manager? I'd feel happier if the three kids had control but this may defeat the purpose of setting up the trust.

Have you decided that your IPs are to be sold on your death? Having IPs seems a bit more complicated than, say, converting all to cash.

We do have our Wills in place and may delay doing anything else until a bit later down the track when we're old! We will probably start to offload properties after retirement in 5-10 years so if we live long enough, there may not be much left!

Regards
Shirley

 

[Dazz]

Hey Shirley,

As I said before, everything is a bit fuzzy as I don't have access to the documentation - it's safely tucked away in the Bank vault back in Australia.

The executor of our wills is my wife's uncle who was the inspiration and driving force behind us starting down our path. He's about 60 and in pretty good nick, so he'll be OK for another 30 years I reckon.

He is also the nominated trustee for the TST.

On a big level, the TST is simply a legal "holding pot" for all of the assets after we depart. We personally get absolutely no benefit from it whatsoever, as we'll be both pushing up daisies.

This holding pot is simply a legal instrument to literally control the prudent management of your assets in a tax effective environment where the assets and cashflows are reasonably safe from creditor attack, children's spouses when divorcing and the Govt via tax.

It's literally a legal mechanism to control your assets after you are long gone. The children don't become involved with any form of control until they about 35, hopefully by then they are capable of handling the reasonably large numbers.

The entire intention of the TST is not to sell any assets, simply funnel the assets into the lower taxed environment. Selling activates all sorts of taxes and defeats the purpose entirely. I'm assured the super rich all carry on with this lark.

The disappointing thing for me, was that the TST only benefits the next generation coming through. hence, I showed all of the exact wording and documentation to my mother and father and encouraged them to also set up a TST, instead of selling all of their assets and letting the Govt get their hands on the dosh.

Dad's only comment was "What a crock of ****, a bunch of legal gobbeldygook that means nothing, your mother and I will be spending most of it, and then selling everything and splitting it up in thirds....if you don't like that you'll get nothing." Sigh, the conversation ended soon thereafter and our TST example paperwork was quietly put away.

As usual, we ended up paddling our own canoe. Some things in life aren't easy.

 

[Cheeks]

Dazzling

Could you please PM me the contact details for the firm you used to set up the testamentary trust.

Thanks