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A testamentary trust is a very powerful tool for families with young children. In particular, the testamentary trust offers the following advantages:

  • Your surviving spouse might re-partner after you pass away (after a suitably long mourning period) but the inheritance you leave your family will be protected for your children in the trust away from the influence of any new partner and protected from any future family law risks.
  • If you and your spouse both pass away together, your children won’t automatically get their hands on their inherence when they turn 21 (which is the case if you don’t use a testamentary trust). You can choose who is responsible for making financial decisions about the inheritance until the children reach financial maturity. How many people have you heard of who came into their inheritance far too early and wasted the lot?
  • The tax treatment could make a huge difference to your family’s financial wellbeing.

For example:

If you die leaving a spouse and 3 minor children, then roughly the first $66,000 of income earned from investing the inheritance through the trust could be tax free and used to pay for the children’s living and education expenses.

If you didn’t have a trust, then your surviving spouse would need to pay tax on that income at their marginal tax rate (in addition to any other income, for instance, their salary) and then pay for those living and education expenses with after tax income. These tax savings continue generation upon generation so that your children can ultimately then apply tax free amounts to their children.

Imagine paying for school fees with tax free income; what a difference that could make!