The forgotten part of investing...Dying Time...



From: Scott Elsom

This is probably not as exciting as a discussion about your next deal...but...I think it's an important part of investing.

I have just gone through the process or restructuring our Family Trust and during the process we went over our wills. Our Wills are fairly simple...if I die, it all goes to my wife...if she's dead it all gets split amongst the kids..and so on.

My solicitor pointed out that because so many of our assets were income producing, we should consider having Testamentary Trusts created upon our deaths. I have known about these for many years, but had thought that they did not apply to our situation. It appears that they do apply to us and probably to others on this forum.

According to my solicitor the big advantages of a Testamentary Trust are:

1. Distributions to children from Testamentary Trusts are taxed at adult rates instead of the 60-odd percent child rate (this would be a great mechanism for tax minimisation for my family should I drop dead tomorrow).
2. CGT is deferred if assets are left to a Testamentary Trust (no transfer of ownership, therefore no CGT).
3. If my kids get married and divorced, the assets in and income from the Trust are normally not included in divorce settlements.
4. Every time the beneficiaries of the Trust give themselves a distribution they will think of me :)

The other advantages (and disadvantages) of a normal trust (Family, Unit, etc) all apply.

My Questions...

1. Does anyone have provision for a Testamentary Trust in their Will?

2. Why did you choose (or not choose) a Testamentary Trust?

3. Why don't the Guru's (or other Investors)ever discuss Estate Planning? It seems pretty relevant to me. Perhaps it doesn't draw the crowds like the other aspects of the game? (cynical by nature - sorry!)

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Reply: 1
From: Con W

We are in the process of also setting this up in our wills. I read about Testamentary Trusts in Suze Orman's book 9 Steps to Financial Freedom. It made sense to me. She gives a brief overview of different ways to set up your will. I'm sure there are other books which give much more detail. I spoke to our solicitor the other day and he said due to our circumstances (previous marriages with children) that we need to set up such a trust to protect each of us and the children. I'd love to hear more if others have further information.
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Reply: 1.1
From: Sergey Golovin


It is good post.

May be one of the reasons people do not replay as yet simply because you are step ahead of the pack.

Stay tuned, it will come up soon.

Sorry cannot help you much there, but, do not go away. It is in the air, but has not been formulated properly as yet.

We are still too busy buying properties...

Ask Paul Z. he might help you.

Serge G.
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Reply: 2
From: Paul Zagoridis

Seeing as Sergey volunteered me ;-)

You're right. Estate planning is boring when you are in an accumulation phase. I'm busy getting life insurance organised and another will drawn up. I'd rather be finding another IP which returns my initial investment during the first year.

But as the balance sheet improves...

My current will is like yours. Tricky part here is my wife and I don't yet agree on who raises the kids. Plus when my eldest turns 18, should I make her the guardian? Remember enough insurance so your kids aren't a burden on the guardian.

Also dealing with what happens if my current executor predeceases me? Plus the potential personal liability to the executor is not nice.

Your solicitor is right about Testamentary Trusts. They also protect pension entitlements for beneficiaries (who could be elderly parents).

Under the old averaging provisions of CGT minors could get $27K tax free. I haven't checked but I suspect that's no longer the case.

I'll almost definitely include a Testamentary Trust in my next will if only as a way to distribute capital and income to the kids who then re-invest it in the trust. After that it works like a normal inter vivos trust. (Inter vivos means set up by a living person not via a will).

Some guru's do include estate planning in tape sets. That's where I heard about it. Trouble is the tax treatment changes regularly and most people aren't interested in what happens when their gone.

Plus Australia has no death duties per se and so it's not as big a deal. CGT should be enough!


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