Aside from asset protection, one of the primary benefits of a testamentary trust in a will is the ability to split the income generated by the trust between family members.
Significantly, income can be distributed to children at adult tax rates. This means each child within a family can receive up to $18,200 from the testamentary trust without paying any tax.
Our advice (and the conservative view) has always been that this benefit only applies to income derived from assets of the deceased estate.
Recently, the Treasury Laws Amendment (Measures for Consultation) Bill 2019 (the Bill) was introduced to amend the Income Tax Assessment Act 1936 to clarify the position and confirm that this view is how the legislation was intended to operate. If passed, the amendments take retrospective effect from 1 July 2019.
Importantly, the position for testamentary trusts existing pre 1 July 2019 remains unclear. We suggest that testamentary trusts only be used for assets that formed part of the deceased estate as trusts established pre 1 July 2019 will still be subject to anti-avoidance legislation.
To view a summary of how testamentary trusts save tax and protect assets, click here.
If you need advice on, or assistance with, testamentary trusts, please contact our Estate Group on (03) 8600 8885.
This Estate Group update was co-authored by Ainsleigh Lugger, Associate, and Sam Frey, Principal Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.