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Why Testamentary Trusts Aren’t Just for the Rich: A Guide to Safeguarding Your Legacy Introduction - featured image
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Why Testamentary Trusts Aren’t Just for the Rich: A Guide to Safeguarding Your Legacy Introduction

The topic of inheritance is often shrouded in a cloud of complexity and misconception.

Many people think that sophisticated estate planning tools like testamentary trusts are only for the wealthy elite.

However, this couldn't be further from the truth.

With rising divorce rates and the increasing complexity of modern families, testamentary trusts and other estate planning strategies are becoming essential for people across all income brackets.

Testament

The shift from straight gift wills

Traditionally, many parents opted for "straight gift" wills, which simply divide assets among beneficiaries.

However, the landscape is changing.

Family law specialists note that over half of the wills being prepared now aim to exclude children's spouses or partners from inheriting in case of a separation.

Testamentary trusts are becoming the go-to solution for this, offering both asset protection and tax benefits.

Benefits of a testamentary trust

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1. Asset Protection

One of the primary reasons parents are switching to testamentary trusts is the concern over their children's relationships.

With divorce rates on the rise and blended families becoming more common, parents are increasingly worried about their hard-earned assets falling into the "wrong" hands.

Testamentary trusts can safeguard assets from being divided in the event of a divorce or separation.

Tax Efficiency

2. Tax Efficiency

Another advantage is the tax benefits.

Testamentary trusts allow for income to be distributed in a tax-efficient manner.

For example, income can be distributed to grandchildren or other low-income family members, who are taxed at a lower rate.

This can result in significant tax savings compared to a straight gift will.

The rise of binding financial agreements

Another strategy that we sometimes recommend is the use of binding financial agreements between couples.

These agreements can offer an additional layer of protection for assets in the event of a relationship breakdown.

However, they're not a one-size-fits-all solution and can be complex and costly to set up.

They're particularly popular among those entering second or subsequent marriages, who have a clear understanding of the financial complexities that can arise from a divorce.

Legal considerations

It's important to realise that courts won't be bound by a trust's terms if they find them to be unfair.

The Family Court, in particular, will scrutinize any strategies that appear to be designed to thwart its intentions.

Therefore, it's crucial to consult with experts when setting up any estate planning structures.

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Note: The increasing complexities of modern relationships, blended families, and rising divorce rates mean that estate planning is not just for the wealthy; it's for anyone who wants to ensure that their assets are distributed according to their wishes and in the most tax-efficient manner.

So, if you're contemplating how to safeguard your assets for future generations, it might be time to have a chat with the team at Metropole Wealth Advisory.

And the next time someone tells you that sophisticated estate planning is only for the rich, you'll know better.

Testamentary trusts and other such "strategies" are becoming essential tools for the modern family, irrespective of their financial standing.


About Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles
2 comments

Re Testamentary trusts - how are the assets in the trust treated for land tax, capital gains tax and the beneficiary pension benefits?

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