Setting up Testamentary Discretionary Trust

squashy on 22/10/2018 - 21:47

We have 1 house that we live in and a positive gearing investment property. I came across the concept of TDT and it sounds like a good idea. When we pass away, the property will be moved into a trust.

The benefits copied from another website:
Protection from bankruptcy
We live in uncertain financial times and the incidence of bankruptcy is on the increase. If a bankrupt beneficiary inherits assets in his/her personal name they will pass to the Trustee in Bankruptcy. A correctly structured Testamentary Discretionary Trust will protect the inheritance as it will not form part of the beneficiary's estate for bankruptcy purposes and will, if properly structured, not pass who the control of the trustee in Bankruptcy for the benefit of the creditors of the principal beneficiary.

Divorce and relationship breakdown
Statistics show the average marriage will not last more than 8.8 years. De facto relationships can be similarly short-lived. An inheritance held within a properly structured Testamentary Discretionary Trust is, under the present law, unlikely to be subject to a Family Court Order in the event of marriage or relationship breakdown. The Court may treat the assets in the Trust as a financial resource available to a particular party but under the present law can not transfer assets within the Trust to the other spouse.

Taxation Advantages
Taxable income generated by the Trust can be allocated among the beneficiaries of the Trust in a tax effective manner. Each beneficiary pays income tax on his/her allocated share of income, according to his/her normal marginal tax rates. Unlike income from an Inter Vivos Trust, beneficiaries under 18 years of age are taxed at normal adult rates and not at penalty tax rates.

Have anyone done it before? Any advice? Pitfalls?

Financial

Comments

  • Godric on 22/10/2018 - 21:57

    I had to look up the definition of so many words when looking to see what a Testamentary Trust is lol

  • spackbace on 22/10/2018 - 22:06

    Divorce and relationship breakdown
    Statistics show the average marriage will not last more than 8.8 years. De facto relationships can be similarly short-lived. An inheritance held within a properly structured Testamentary Discretionary Trust is, under the present law, unlikely to be subject to a Family Court Order in the event of marriage or relationship breakdown. The Court may treat the assets in the Trust as a financial resource available to a particular party but under the present law can not transfer assets within the Trust to the other spouse.

    So… You'd prevent your spouse having half the property in the event of divorce?

    Yep, great plan 😂😂

    • nino24 on 22/10/2018 - 22:17

      I believe the original poster was referring to using this trust when both them and their spouse passed away. They didn't mention if or how many children they have so it would only be the spouses of the beneficiaries (whether their own kids or whoever inherits the trust) that can't touch it in the event of divorce.

    • Seraphin7 on 23/10/2018 - 09:23
      +1

      The testamentary trust comes into effect after death. Therefore any matters pertaining to divorce are only relevant to the beneficiaries of the trust, most likely the OP's children.

    • HighAndDry on 23/10/2018 - 11:04

      Not to do with Family Law, but the Courts have basically said if they think someone who they feel "deserves" to be in a will has been left out, they can give that person money out of the will, no matter what the deceased wrote in the actual will.

      To me that's a travesty and something a Testamentary Trust can get around.

  • hawkeye on 22/10/2018 - 22:37

    8.8 years proves it's cheaper to have young rentals in paradise every couple of months.

  • Tasmaniac on 22/10/2018 - 23:31

    Seems like a good option.

  • Fier2 on 23/10/2018 - 00:27

    If you don t trust your kids, you should do it. It will manage your assets for them until the date you sets and give them some income. Your beneficiary won t be able to sell though.

  • mskeggs on 23/10/2018 - 06:18

    No land tax threshold in nsw for trusts.
    The trust could own shares in a company or lend it money.

  • chumlee on 23/10/2018 - 08:17

    Do you need to pay stamp duty and/or capital gsins tax upon tranferring to a trust?

  • slow on 23/10/2018 - 08:39
    +1

    I have one, would recommend it, although hope to never have to use it . You will need to get a lawyer though to draft the will, which will cost a couple of thousand. There are a lot of things to think about as how you want the trust to be setup, like who should be the trustees, how and when the kids will have access to the funds etc etc, and also ties in with who will the guardians of the kids. There are lots of good articles on the web, and some threads on whirlpool.

    • mrtin on 24/10/2018 - 01:06

      I would suggest a lawyer and financial adviser to work together on a will. The adviser would be able to assist with explain the financial implications of making certain decisions, thereby helping you make an informed decision. The lawyer can draft the will. Wills with a TT can cost anywhere from 500 to 10,000 plus.

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