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Is the Government one of your Beneficiaries? |
Jack was a smart businessman. His business affairs were cleverly structured. He and Pam were both professionals. Pam had worked to her late 30’s when the first of their three children were born. |
Unfortunately the one thing Jack had overlooked when he died suddenly in his early 50’s was reviewing his Will. |
The Will had been made when he and Pam were first married and simply provided for all of his assets to go to Pam. This included the Hunter Valley vineyard which both Jack and Pam wished ultimately to be transferred to their son Thomas when he reached 25. |
When Jack died the three children were aged 12, 10 and 8. The older two were at expensive private schools and the youngest was due to start at a private school two years later. |
If Jack had reviewed his Will prior to his death he could have established a testamentary trust whereby Pam and his children would all be beneficiaries and Pam could direct the allocation of capital and income. This would have taken advantage of the tax rule whereby minors benefiting under a testamentary trust are taxed as adults so that for example the first $5,400 of each year’s income distributed to each child is tax free. This would have enabled the school fees and other living expenses of the children to be paid from Jack’s Estate in a tax effective manner. |
A testamentary trust would also have enabled Pam to leave the vineyard in the Estate until Tom reached 25 and to then transfer it to him eliminating stamp duty on the transfer and also eliminating the obligation to pay CGT at that time. |
Regrettably because Jack’s Will did not incorporate a testamentary trust, Pam could not take advantage of the favourable tax treatment of income distributions to minors from testamentary trusts, John had to pay stamp duty when the vineyard was ultimately transferred to him and Pam was faced with a Capital Gains Tax bill at that time. |
Is it time for you to review your Will? |
