At Future Gen, we provide estate planning advice for individuals and families and facilitate its implementation through competent Estate Planning Solicitors.

Of concern to us has been the recent Budget announcement to tax the assets of Discretionary Testamentary Trusts by 30%. We are pleased to write that the Federal Government has, after consultation, seen fit to exempt Discretionary Testamentary Trusts from this tax.

Why is this important? We provide for the implementation of these discretionary trusts through the Will. As the name suggests, it is discretionary. It allows the Trustee of the Trust created only on death to distribute monies according to the separate needs and circumstances of each beneficiary. The need for discretion is paramount, and no one can look to the future and agree in advance on what the special needs of those beneficiaries may be.

The key benefits of the Testamentary Trusts are as follows. Firstly, Section 102AG of the 1936 Tax Act allows minors (children under 18 years of age) to be taxed at ordinary adult rates of taxation rather than at the penalty rates that apply when you distribute monies to children. Therefore, it allows children to receive the first $18,200 of income tax-free, provided it is below the tax threshold at which tax is payable.

Additionally, the Testamentary Trust has protective features. The assets of the Trust cannot be pursued by creditors who may be chasing a beneficiary. The assets of this type of Trust cannot be considered for family law matters. And the children who are beneficiaries of the Trust are protected from the failed relationship of the remaining parent. The parents’ ex-spouse cannot bring a claim against the Trust’s assets. The children are also protected from getting their hands on the money until a certain age and or a level of financial competency is achieved.

Discretionary Testamentary Trusts are game-changing for the remaining children and parents. Having lost a parent and a breadwinner, the assets of the Trust often allow housing to be maintained and for the remaining spouse and children to have a basic quality of life, while allowing the children to continue their education.

The Federal Government’s decision to change its view was the right thing to do.