Grandparents – A Flexible Will “Saves Tax”

Beneficiaries under 18 – a Flexible Will “Saves Tax”

Where there are children or grandchildren under 18, there are potential tax savings to be made from a Flexible Will.

A Flexible Will incorporating a testamentary trust is a more flexible structure for the beneficiary. Each beneficiary can choose, at the time of your death, whether or not they want to take advantage of the more flexible option. If a beneficiary chooses not to take advantage of the more flexible structure, then the Flexible Will simply operates just like a traditional will.

The tax benefits of a Flexible Will for beneficiaries under 18 are highlighted in the following example.

Betty and Martha did everything together. They both die leaving one child each.

Both their children are:

  • Aged 40 years.
  • Married with three children (aged 5, 7 and 11).
  • Earned about $35,000 a year and had wives earning $30,000 a year.
  • Had homes with $400,000 with mortgages of $220,000.

Betty and Martha both left estates worth $400,000.

The following occurred:

WillBetty did a Traditional Will. Under her will, she left everything to her son Adam.Martha left a Flexible Will, in which she established a testamentary trust for her son Ralph.
Allocation of EstateAdam repaid his mortgage with the funds from the estate.  The balance then remaining ($180,000) was invested in Adam’s name.Ralph also repaid his mortgage with the funds from the estate.  The balance then remaining ($180,000) was invested in the name of the testamentary trust.
Income earningsAdam received a return of 10% on the investment – $18,000 paThe trust’s investment also earned 10% a year – $18,000 pa
The tax stingThe income was taxed in Adam’s hands – Adam paid $5,400 (30%) tax.For tax purposes, $6,000 was treated as income of each child.  No tax was paid.
BalanceThe balance of $12,600 was then used to feed, clothe and educate Adam’s children.The whole $18,000 was available to feed, clothe and educate Ralph’s children.
ResultOver the next 10 years, Adam paid a total of $54,000 tax.Over the next 10 years, no tax was paid by the trust.

To find out more about whether a Flexible Will is right for you, contact us.

Ross Mason
Ross Mason

21 Mar, 2019

The information in this article is intended to provide general information only and does not constitute legal advice. If you require legal advice specific to your particular circumstances, you must formally engage a lawyer or law firm. The law is subject to change, and whilst we strive to keep our content up-to-date, developments may occur after publication. The information contained on our website should not be relied upon or used as a definitive or complete statement of the relevant law. Mason Lawyers takes no responsibility for any use of the information provided. Liability limited by a scheme approved under Professional Standards Legislation.

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