A testamentary discretionary trust is established by the terms of your will and gives flexibility as to how and when your beneficiaries receive their benefits from your estate. This protects the beneficiaries' entitlements and minimises any applicable tax consequences for them.

This is possible because, under a testamentary trust, the assets of your estate will be held by a trustee for the beneficiaries and not by the beneficiaries themselves. This applies despite the fact that the trustee can be - and usually is - also the beneficiary of the trust, which gives them total control of their inheritance without the assets being at any risk. A testamentary trust is discretionary as the trustee will hold the assets at its discretion, for the protection of those assets and the beneficiaries.

Tax Benefits

Testamentary trusts can be a tax effective tool against the tax man. If a beneficiary takes their inheritance in their personal name, they will pay tax on any income generated at their personal marginal tax rate. However, with a testamentary trust, income, capital gains and franked dividends from shares can be distributed among all beneficiaries (including a minor beneficiary who has no other income, or to partners on low income), each year in the most tax-efficient way.

Beneficiaries Asset Protection

A testamentary discretionary trust protects your beneficiaries from future creditors, predators, and the tax man, or possible claims on their inheritance due to a marital breakdown or business failure. In certain circumstances the trust can even protect the assets from misuse by the beneficiary themselves. For example, if a beneficiary has an addiction, a bequest could be left in a trust which allows them to receive appropriate maintenance and treatment but does not allow them to access the capital.

Additional Controls

Additional controls determining access to specific assets and for what purpose can also be specified within the trust.

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