Testamentary Trust – tax benefits 2017-11-23T09:42:51+00:00

Deeper Knowledge and Opportunities

Tax benefits of including a testamentary trust in your will

To better explain the benefits of preparing a more sophisticated will, containing a testamentary trust we have prepared some specific examples. See the example that most closely resembles your situation.

Legal tax benefits of a testamentary trust

This opportunity arises by utilising special tax concessions, only available to will-makers. Combined with income splitting this often results in very significant tax savings.

What are tax concessions?

Income generated from assets held in a testamentary trust is taxed differently to income received directly because of section 102AG(2)(a) of the Income Tax Assessment Act. A special concessional tax treatment applies.

Children under 18 (including grandchildren and other relatives of the will-maker) named in these trusts are entitled to be taxed as though they were adults. Most people are unaware that distribution of income to children under 18 is otherwise taxed at abnormally high penalty tax rates.

This means they receive the initial tax-free threshold and the ordinary marginal rates of tax, usually only applicable to adults. You can see from the examples we provide what a dramatic difference this can make.

The tax-free threshold removes the obligation to pay tax on the first $18,200 of income. Furthermore, if the low-income tax offset is available, the effective tax-free threshold for these minors becomes $20,452 per annum.

What is Income Splitting?

The person you wish to benefit under your will has an opportunity to split the income generated by assets held in a testamentary trust, to other people as well as themselves.

Australia has a marginal tax system with an initial tax-free threshold that applies before tax becomes payable. Splitting of income between a number of recipients means their collective tax burden is much less than the tax that otherwise applies if one recipient had received all the income.

To better explain the benefits of preparing a more sophisticated will containing a testamentary trust and income splitting, we have prepared some specific examples.

Sign in to immediately access the example that resembles your situation. This is the easiest way to understand the massive benefits you can potentially pass on to your beneficiaries.

WANT SOME HELP BEFORE GETTING STARTED?

Maybe you have a basic will or something more sophisticated in mind, or you’re not quite sure yet? We can help you work it out in a 20-minute Free Estate Planning Blueprint Session by Skype or telephone. After the session, we email a report which is yours to keep regardless of whether we are a good fit or not Find out more