I have heard of Testamentary Trusts. Does this have anything to do with a will? Can they save tax ?

  • A Testamentary Trust is any trust created by a will.
  • The term is also used to refer to a trust created with money that came from an estate.
  • It is common in a will to make gifts to children. They might be your children or grandchildren. If these gifts are invested and earn interest, this interest will be income in the child's name. Normally a child (under 18) is only allowed to receive $416 per annum unearned income before paying tax at the maximum rate. This rule was introduced a few years ago to stop high income earners splitting their income through family trusts into their children's names. However, there is an exemption to this rule. If the trust income comes from assets left by an estate, then the normal tax rates and exemptions apply.
  • this means that the first $6,000 is tax free and the progressive rates of tax apply to the balance. The savings can be substantial.
  • you must have an estate of sufficient size to justify setting aside funds for infant beneficiaries and still provide for adult beneficiaries.
  • the exemption can also apply to funds you have placed into a trust for children when the funds have been left to you from an estate. There are more restrictions on this type of trust and the funds must be put into the trust within 3 years of the death. Also limits on the amount of benefit apply.
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Saturday, 17 August 2019
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