The West Australian - - AGENDA - with Nick Bruining

In a fi­nan­cial plan­ner’s of­fice, there’s not a week that goes by with­out a dark se­cret be­ing re­vealed. An old flame that’s sud­denly reap­peared, the daugh­ter that needs a loan or the real feel­ings about the son’s new part­ner.

The nub of the dis­cus­sion is of­ten cen­tred on how to pro­tect the fam­ily for­tune that took years to ac­cu­mu­late from dis­ap­pear­ing into some­one else’s pocket.

Work­ing closely with our col­leagues in the le­gal pro­fes­sion, the tools avail­able are pow­er­ful and var­ied. The spin-off ben­e­fits could see your fam­ily for­tune fund­ing your great-grand-daugh­ter’s ed­u­ca­tion at Pen­rhos, with much of it tax free.

At the heart of the ar­range­ment is a spe­cial ve­hi­cle known as a tes­ta­men­tary trust. It’s a trust that sits dor­mant un­til you die and like a phoenix that springs from the ashes (per­haps an un­for­tu­nate anal­ogy), the trust is ac­ti­vated when pro­bate is granted.

The will is beefed up with a trust deed, which is a set of writ­ten rules that ex­plain how the trust will op­er­ate. It usu­ally adds sev­eral pages to the thick­ness of the doc­u­ment.

The deed sets out what things the trust can do, the forms of in­vest­ment it can make and, im­por­tantly, who the play­ers are. These will in­vari­ably in­clude the ben­e­fi­cia­ries of your es­tate and us­ing this ap­proach, the list of ben­e­fi­cia­ries can be as broad or as nar­row as you want it to be.

It could, for ex­am­ple, sim­ply name “all of my grand­chil­dren and their de­scen­dants”, by­pass­ing your chil­dren and their spouses.

The deed will also need to set out who the boss or trustee of the trust is and, again, this might be your child, a sib­ling or oth­ers. Im­por­tantly, the trustee’s le­gal duty is to act for the listed ben­e­fi­cia­ries — and no one else. The trustee might also be given dis­cre­tionary pow­ers to dis­trib­ute to the ben­e­fi­cia­ries as they see fit.

That dis­cre­tionary power means they can make dis­tri­bu­tions of in­come or cap­i­tal from the trust as re­quired.

The last as­pect con­cerns tax­a­tion. While one at­trac­tive as­pect of self-man­aged su­per funds might be their use as a type of es­tate plan­ning tax tool, the hum­ble tes­ta­men­tary trust shouldn’t be ig­nored.

Mi­nors (or kids un­der 18) who re­ceive dis­tri­bu­tions from these trusts are taxed at the same rate as adults. They could re­ceive $18,200 tax free from the es­tate per an­num. Much bet­ter than the $416 per an­num they are nor­mally per­mit­ted, $18,200 might go some way to pay­ing for the school fees or, at the very least, those rid­ing lessons.

The costs of a will in­cor­po­rat­ing a tes­ta­men­tary trust aren’t in­signif­i­cant and they won’t be part of the free will kit that turned up with your fu­neral in­sur­ance pol­icy.

Es­sen­tially, they are a trust deed and a will com­bined in the one doc­u­ment. Costs will vary, but typ­i­cally they sit around the $2500 mark. It’s a big out­lay for a will but con­sider it an in­sur­ance pol­icy to en­sure your fam­ily for­tune doesn’t end up with the in-laws or in the pock­ets of a spend­thrift child.

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