The Christmas holidays are a much-needed chance to relax and catch up with family that you may have not seen for an extended period of time, particularly considering the recent border lockdowns.

Hopefully, this break also provided you with the time to reflect and consider how you can ensure that your family are still able to enjoy many more holidays together, without worrying how they might cope if something were to happen to you.

One of the most important steps you can take to protect your family and maximise your assets upon your passing, is to include Testamentary Trusts and Super Proceeds Trusts in your Will. 

Testamentary Trusts and Super Proceeds Trusts

Whilst not for everyone, your estate can be planned in a way to ensure your family is well cared for financially and your assets are protected.

One of the best ways to ensure this outcome is to consider Testamentary Trusts and Super Proceeds Trusts in your estate plan.

What is a Testamentary Trust?

A Testamentary Trust (“TT”) is a type of trust created in your Will that comes into operation when you pass. TT’s are often set up in Wills by parents who wish to ensure their children are placed in the best financial position and that hard-earned assets are not whittled away by beneficiaries or external factors including taxation considerations.

The most common way to do this is to make the TT “discretionary”, so the Trustee (the person elected to care for and manage the Trust) can provide funds to your children (or other beneficiaries) as and when it is needed. This allows the Trustee (usually with legal or accounting advice) to be flexible on how they deal with assets and to whom they give those funds.

What is a Super Proceeds Trust (SPT)?

Your superannuation will likely be a significant portion of your estate but can be vulnerable to unnecessary taxation if appropriate steps are not considered.

SPTs are established in Wills to ensure that your superannuation only goes to the beneficiaries who will not be unnecessarily taxed. This is usually by way of a binding death benefit nomination to your “legal personal representative” directing your superannuation to flow through your estate and into the SPT. Once again, this is to allow your Trustee (on advice) flexibility.

The benefits of TTs and SPTs

Wills that incorporate these trusts are more complicated and expensive than a standard Will, so why incorporate a Testamentary Trust and Super Proceeds Trust in your Will?

Whilst individual circumstances must be considered generally, the benefits are worth it.

Benefits of TTs and SPTs

The benefit of having TTs and SPTs in your Will is that it provides flexibility to the person administering your estate or the trust to place the money or the assets in a way that most benefits your family and your beneficiaries.

Some specific benefits are:

• Taxation advantages. There are many circumstances in which the taxation outcomes are far superior within estates that contains TT’s and/or SPT’s than those that do not;
• For an SPT, they are more beneficial when you have more than one dependant (e.g. a spouse and at least one child).
• Protection of money or assets if a beneficiary cannot look after their own affairs e.g. an infant child, an adult child with an intellectual disability or a drug dependency/gambling issue;
• Protection of money or assets if a beneficiary is facing bankruptcy or takes entrepreneurial risks or is in a high risk business where legal action is likely;
• Protection of money or assets if a beneficiary is facing separation or divorce or family court proceedings involving property;
• If the Will maker, whilst wishing to ensure their spouse is provided for, is concerned their spouse may misuse the funds and the children will not receive appropriate financial support;
• Through a SPT, you are able to divide your super among numerous dependants, usually at the discretion of the Trustee; and
• Some protection from a challenge against their own Will or estate.

Overall, a TT and SPT in a Will gives the Trustee (and the Will maker) flexibility over how the assets are allocated to ensure the best financial preservation and protection of their family’s future.

The disadvantages of not having TTs and SPTs

Without a TT or SPT in your Will, your estate is vulnerable to unnecessary or avoidable taxation and potential claims by wayward family members. The Trustee or the executive (who is often your spouse) may not have the flexibility and freedom to choose the best way to divide cash and assets and your loved ones may therefore not benefit as much as they could from your estate.

Additionally, without a TT or SPT your children may receive a large lump sum payment at a young age and therefore may not be old or mature enough to receive such inheritance.

Of further concern, is that all former spouses (married or de facto) may be able to make a claim on your superannuation if it is not directed to your legal personal representative and managed through an SPT.

The next steps you should take

To make sure a TT, SPT and Will are set up correctly and to reduce the risk of any legal or financial complications after death, make sure you seek expert legal, accounting and financial advice before taking any action.

We suggest you take the following steps:

1. Contact Hillhouse Legal Partners to discuss amending or preparing your Will and advising you on your estate plan;
2. Upon the receipt of legal and accounting advice if best for you and your family, ensure TTs and SPTs are established in your Wills;
3. Sign your Wills; and
4. Relax knowing you’ve done all you can to protect your family’s future financial position

Robert Lamb is a regular contributor for the leading mining and resources publication Resources Unearthed. He regularly provides advice across a spectrum of often complex legal matters within this sector.

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