It
is strongly advised that investment assets, especially those that appreciate in
value, be held in Discretionary Trusts.
Apart from the flexibility achieved regarding the distribution of income
and capital as well as asset protection there is no disposal upon death of one
of the Beneficiaries and therefore no capital gains tax consequences.
This has the effect of providing for a flexible
structure for both parents and surviving Beneficiaries. If you are restructuring your affairs and
transferring assets to a discretionary trust then careful attention must be
given to who will control the trust upon your death. Three main areas that are often neglected
include:-
Executing a Will and making no
provision for assets held by your discretionary trust.
The Will leaves total control of
their discretionary trust to one beneficiary who under the powers of the deed
distributes all the trust property to him/herself.
Provision is made for the
discretionary trust, however you neglect outstanding loan and beneficiary
accounts and these destroy your intentions.
Testamentary Trusts are one of
the greatest planning tools available to every taxpayer and their advantages
far exceed the tax relief and include:-
Protection of pension
entitlements for surviving spouses and Beneficiaries.
Income tax advantages to
Beneficiaries of a Will.
Capital gains tax advantages to
Beneficiaries of a Will.
Protection of Beneficiaries
against creditors and bankruptcy.
Control of assets against
spendthrift Beneficiaries.
The main benefits of a
testamentary trust fall under Part III Division 6AA of the Income Tax
Assessment Act 1936 whereby assessable income of a trust estate is accepted
trust income and therefore those amounts distributed to minors are not subject
to the penal rates. That is, a capital
gain of a certain sum distributed to a minor from a Testamentary Trust would be
subject to no tax as a result of the averaging provisions that apply to capital
gains.
