Testamentary Trusts ("PTT")

- the 2nd rate Testamentary Trust

Does your Will contain Testamentary Trusts?

A well prepared Will usually contains 3 Generation Testamentary Trusts. It you want to find out whether your Will contains a Testamentary Trust then speak to your Adviser or Accountant. If they need further support then they can arrange for you to speak with us.

Sometimes people die with no Will or an old Will that didn't contain a Testamentary Trust. (Almost all Wills prior to 1993 made in Australia fail to contain Testamentary Trusts.) This makes the state and federal government happy because your family is more likely to have to pay additional Capital Gains Tax and stamp duty tax - even on the family home. For a copy of our Manual on Estate Planning speak with your Adviser and Accountant.

"Post Testamentary Trusts" are superior to "superannuation proceeds trusts". They have advantages over "superannuation proceeds trusts" as set out below.

What if a family member dies without a Testamentary Trust Will?

All is not lost. If you die with a Non Testamentary Trust Will or even without a Will you can within 3 years of that death set up a Post Testamentary Trust ("PTT"). While this is not as good as a testamentary trust a PTT has many benefits provided you have children under 18 years of age. If your children are over 18 years of age then the PTT won't help you save tax. Sorry about that. (On the other hand a Testamentary Trust works with or without children.)

How do I set up a Post Testamentary Trust Will?

The Taxation Assessment Act 1997 states that a person receiving property (real estate, cash and the like) from a deceased person has 3 years after the death of the deceased to transfer that property to a PTT. A Lawyer who works in the area of Estate Planning together with your Adviser can set up such a trust. The income generated in the trust from the deceased estate can be used for income splitting for your children under 18 years of age.

What advantages are there for children under 18?

Children under 18 years pay tax at the highest marginal tax rate once they receive over $416 in a financial year. Under both a Testamentary Trust and Post Testamentary Trust they do not suffer this penalty tax - they pay tax at adult marginal tax rates. (For example, their first $6,000 is tax free.)

Why is a Post Testamentary Trust not as good as a Testamentary Trust in a Will?

Unlike a Testamentary Trust, how much tax effective income can be generated in the PTT is limited to the intestacy laws in each state.

For example, assume your wife dies with an estate of $200000 and your Adviser and Tax Lawyer put the $200000 into a PTT. Not all of that money can be income split with your family. The amount of property that is available to generate tax effective income is limited to the amount of property you would have received if your spouse had of died without a Will.

Further, the recent changes in Commonwealth Act No. 181 of 1994 now require that your children receive all the capital of the trust when the trust ends.

What do I do now?

If you are still alive and kicking and love your family then get proper Estate Planning. If dead it is too late! Your Adviser, Accountant or Lawyer can arrange a meeting with us. The cost is generally $440 per hour. Civic Legal is a private law firm and only accepts instructions via your Accountant, Lawyer or Adviser. We don't take clients off the street.