42 – Testamentary trusts

Dover encourages its advisers to provide estate planning advice, and backs this up with expert legal support from MLA Lawyers.

You can read about the financial planner as an estate planner here: Dover way materials on estate planning. As you can see, wills creating testamentary trusts feature in our advices, and advisers can obtain low cost wills from Dover www.legaledocs.com.au with the service backed up by MLA Lawyers.

These materials include samples wills including sample wills creating testamentary trusts.

One of the big advantages of a testamentary trust is that the trustees can use their discretion to distribute net income to beneficiaries under age 18 and beneficiary will be taxed as an adult, rather than at the penalty tax rates usually applying to the unearned income of minors.

This is because distributions from testamentary trusts comprise “excepted income” in the hands of minors. This means, for example, the first $18,200 distributed to say a two year old baby from a testamentary trust will be completely tax free.

This is worth discussing with your older clients with grandchildren who are worried about school fees and similar family costs.

Grandma can set her testamentary trust to ensure, say, $18,200 is paid tax free to each of her five grandchildren with the direction it be used to pay school fees or similar costs.

This legacy frees her own children from having to earn say $33,000 of pre-tax income per child to cover those school fees.

This is worth noting to your older clients at their next 6 monthly review meeting.

Coleman Greig Lawyers have created an excellent guide to testamentary trusts and you can access it and similar documents here: Plain English Guide to Testamentary Discretionary Trusts.

What should your will look like?

You know that plumbers never finish their own bathroom, right? Well, its the same for financial planners, except they never finish their own wills. 

Unless you are a complex case, your will should be simple. For example, a married financial planner should probably leave everything to her husband and, on the death of her husband, everything to two trusted persons as trustees of a testamentary trust for the benefit of their children, with his wife’s two sisters acting as guardians for the kids. This simple approach has worked for thousands of young couples and will work for most of your clients.

Cases where it will not work include disabled children, second matches, second batches, threatened relationships, large amounts of wealth, complex business arrangements and so on. Never forget most super is not covered by the will and separate binding death benefit nominations may be needed.

Sample wills creating testamentary trusts can be viewed here: Dover way materials on estate planning.

The Dover Group