Two minute scenarios...
In response to requests from Advisers, we look at three of the key advantages of having testamentary trusts in Wills... and why we believe most, if not all of your clients would want them - if only they knew.
To use or not to use...the testamentary trust
Clients: Anna recently inherited $1m from her father. His Will gives her the option of taking the inheritance in a discretionary testamentary trust. Anna wanted advice on what to do.
Objective: Anna wants to know whether it's worth putting the inheritance into the trust or whether she should just take it in her own name. She has three young sons; 12, 15 and 18.
Advice: Anna is earning $60K pa so it's certainly worth putting the money into the testamentary trust. The $1m can be invested at say 5% earning her an additional $50K pa. If she took that in her own name she would pay an extra $17K tax. However if that income was earned in a discretionary trust she can distribute that $50K to her three boys. Unlike a normal family trust there is no penalty tax for minors. They will be taxed but the total will be less than $5K - a saving of over $12K. And that's just the first year...
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The safe option...
Client: Anna's brother John who is a dentist, also inherited $1m. He is engaged to be married. He also wants to know if it's worth bothering with the testamentary trust.
Objective: If John is sued for negligence he could lose all of the assets he his holding in his own name. He wants to know how to best protect his assets.
Advice: If John takes the $1m in a testamentary trust it is safe from a bankruptcy trustee. And when he does have children he too can distribute income.
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Too much, too soon...
Client: Anna now understands the benefits of testamentary trusts and wants to have her own Will updated.
Objective: Anna wants to ensure her boys are looked after and will appoint her brother John as guardian. However she doesn't want them to have access to too much, too soon.
Solution: Anna has the choice of having a Will prepared whereby she chooses the age at which her boys get control of their inheritance. If she has a Standard Will done the boys could get control at 18 even if she specified otherwise. A Will with discretionary testamentary trusts however gives Anna the ability to appoint someone else eg John, who can control the trusts until the boys reach say, 25 yo.
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Growing your practice - using estate planning
We received a most welcome testimonial last week from an Adviser in Perth who is attracting new clients via estate planning.
If you want to extend your skills in this area or in Business Succession Planning, you may like to become an Alliance Partner. For more information refer here.
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