Wills and Testamentary Trusts
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Why Have a Will?
A Will enables you to provide for your family, children, friends, charities, etc. Your Will ensures your money and assets are left the people you intend them for. Your Will lets everyone know how you want your Estate to be distributed when you pass away. A carefully prepared valid Will is a great gift to your loved ones as it minimises stress at a time of great sadness and grief.
Most people want to make sure their estate passes to family and loved one with as little hassle as possible. If you don’t have a Will, you die ‘intestate’ and intestacy laws will dictate what happens. This can result in your assets/money being left to people you don’t intend. And it can mean stamp duty and taxes are levied when they could have been avoided. If you don’t have a Will, you usually leave a big mess and a lot of stress for your family at a time when they least need it.
We never recommend DIY Will kits that are available online or at a newsagency. A valid will has many specific requirements which are set out in The Succession Act. There are many requirements. Some of them are as detailed as ‘you need 2 witnesses; who are present at the same time; who cannot be beneficiaries…’ If any of the requirements for a valid will are mucked up, your Will is compromised. After your passing, it will be more expensive, time consuming and difficult to get a grant of probate if your will is badly prepared.
It is a good idea to take some time to think about what you want to happen with your assets after your death. This is called Estate Planning.
Types of Wills
There are different types of Wills. Some are very straightforward. For most people, a straightforward Will is all that is needed.
An example of this: If you are part of a happily married couple and you have a home, maybe an investment property and personal effects like cars and furniture, you would both have a Will that leaves everything to each other, and then to your kids. You also appoint executors who oversee the distribution of your estate to nominated beneficiaries.
The Will gets more involved and takes longer to prepare if there are specific provisions that provide for a blended family. Or if you have remarried/re-partnered. Or if you have many specific gifts you want to leave. You still only need a straightforward Will, it just may be a little more expensive to prepare as it takes longer to draft specific clauses.
If you have a lot of assets and your net worth is more than a million dollars (outside your Super) you may need to set up a testamentary trust in your will. Or maybe you don’t have a million dollars but there are circumstances where you don’t want your children to receive all their money at once. For example, you may wish to provide some asset protection because one of your children is bankrupt. Sometimes people have a child who is not able to manage money and you want to drip feed it to them rather than leave a lump sum.
A testamentary trust is a Trust created within your Will that comes into effect after your death. It gives the Trustee’s discretion (power) to decide how and when to distribute assets to the beneficiaries. People who have substantial assets often find it very beneficial to set up a Trust in their will. There are two main reasons for this.
Firstly – The Trust minimises the tax that beneficiaries will have to pay when they receive assets or money. Any income, capital gains and dividends can be distributed to your beneficiaries each year in the most tax-efficient way. Also, distributions can be made to minors under the age of 18, tax free (up to the marginal rate).
Secondly – You can protect your loved ones and your assets. You may have a child who has an addiction and the last thing you want to do is leave them a big sum of money. A Trust can drip feed money to them. Maybe you have a child with a risky business that may go bankrupt. Perhaps you have a child with special needs. Again – you probably don’t want to leave them a big sum of money all at once as they may not manage the money well in these circumstances. Maybe you have a child whose marriage is shaky, and you don’t want half the money going to their ‘ex’ if they divorce. A Trust gives flexibility to the Trustees to decide how and when to distribute money.
As a Testamentary Trust Will is specific to your situation and can be quite complex, it takes considerable time to prepare. Naturally, it costs more than a straightforward Will. There are also some costs involved in the administration of the Trust once you pass away as your estate needs to maintain and administer the Trust.