Investax Frequently Asked Questions
If a beneficiary has control over the trust, Centrelink may consider both the trust’s assets and income as belonging to the beneficiary, potentially affecting their eligibility for Centrelink benefits. The trust’s control and the “control test” are factors in this assessment.
Establishing a Testamentary Trust typically incurs higher initial costs compared to a simple will, ranging from $2,500 to $5,000. While there are no ongoing costs until the Testamentary Trust is activated upon the will-maker’s death, it is important to be aware that there will be associated administrative costs for preparing annual tax returns once it is activated.
Testamentary trusts offer potential benefits related to CGT. Capital gains can be distributed to beneficiaries with a potential 50% CGT discount, even if the assets were held for less than 12 months by the trust, provided the original owner held them for at least 12 months.
A Testamentary Trust allows for income splitting among family members, such as children and grandchildren. This means that beneficiaries can receive income from the trust and be taxed at adult marginal rates, potentially reducing the overall tax burden on trust-generated income.
Income distributed to minors from a Testamentary Trust is considered ‘excepted trust income’ and is taxed at standard adult marginal tax rates instead of higher penalty rates, resulting in potential tax savings. Consider a scenario involving beneficiaries Ron and Tracey, who are minors and beneficiaries of a Testamentary Trust. When the trust generates income, distributing it equally between Ron and Tracey can result in substantial tax savings due to the special tax provisions for Testamentary Trusts. They will not be taxed at a penalty rate like the other trusts.
It’s advisable to review your Testamentary Trust deed and Will annually to accommodate life changes and legislative updates, such as new asset purchases or sales.
When selecting a trustee, it’s essential to choose someone financially savvy and trustworthy. In cases with multiple beneficiaries and properties, you can consult with a legal team to have different trustees for multiple Testamentary Trusts.
Yes, assets within a Testamentary Trust, managed by a trustee, can provide protection against claims by third parties, such as creditors, toward the beneficiaries. The trustee holds the assets for the beneficiaries’ benefit, reducing vulnerability to such claims.
