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The benefits of having a Testamentary Trust for Tax Advantages.

In Part 3 of our Part 5 series Wills & Estates Solicitor Richard Dawson takes us through the benefits of using the structure of a Testamentary Trust for Tax advantages.

Contact our Lawyers Gold Coast team for more information on Testamentary Trusts.

See Part 1
See Part 2


I’m Richard Dawson, Partner at OMB Solicitors, and I’m in charge of the estate planning team. Today, I want to talk to you about setting up testamentary trusts within your will and the tax advantages of doing so. A testamentary trust is a trust that is established in a person’s will.

It comes into effect when the will maker passes away and the executive administers their estate. There are a number of advantages of having a testamentary trust in your will, and one in particular is income splitting for tax advantages.

For example, let’s say a deceased estate was worth one million dollars, and it left that million dollars to a testamentary trust. In that testamentary trust, there may be a number of beneficiaries. For example, the deceased person’s children and grandchildren.

One of the advantages in a testamentary trust is that children and grandchildren under the age of 18 are taxed at adult marginal rates. This is different from family trusts, which are more commonly used to run family businesses and the like. So let’s use an example, let’s say the million dollars was invested and the return on the investment was 5 % per annum. That will generate $50,000 a year in taxable income.

The trustee of the testamentary trust, which more often than not is the deceased person’s child or potentially grandchildren, they have the day to day management and responsibility of administering the testamentary trust. One of those responsibilities is to ensure that a tax return for the trust is lodged after 30 June each financial year.

Using the $50,000 income as an example, let’s say we had three grandchildren under the age of 18. The trustee has the ability to split that $50,000 to each of those three grandchildren, and the first $18,200 for each grandchild is tax free. Therefore, you can see the $50,000 a year in income from that testamentary trust is completely tax free.

One of the advantages and peace of mind for the will maker is instead of paying the tax that would otherwise have been paid if that million dollars was left to an adult child on a high taxable income, the tax savings can be used for the grandchildren’s education.

Therefore, I like to say, let the tax man pay for the grandchildren’s education. Think of it this way, instead of paying the tax that would have been payable to the ATO, the testamentary trustee can pay it to the school headmaster to be used for private school education, sporting needs, or any other maintenance that these young children or grandchildren may need in their life.

So, If you would like any further information about testamentary trusts or the advantages and disadvantages as to why they are used, please get in contact with me or one of my estate team members, and we’ll be more than happy to assist.

Thank you.

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