Tax Savings: Flexible Will For Young Families
Where there are children or grandchildren under the age of 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 asset protection benefits of a flexible will for young families are highlighted in the following example:-
Andrew and Phil did everything together. Tragically, on a fishing trip, their boat capsized and they both lost their lives. Both Andrew and Phil (aged 37 years):
- Were 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 $300,000 with mortgages of $100,000.
- Had no savings but had superannuation and life benefits worth $280,000.
Andrew and Phil could be described as the typical young husband.
On their death, the following occurred:
| Issue | Andrew | Phil |
| Will | Andrew had a traditional will. Under his will he left everything to his wife (Susan). | Phil left a flexible will, in which he established a testamentary trust for his wife (Mary). |
| Allocation of Estate | Susan repaid her mortgage with the funds from the estate. The balance then remaining ($180,000) was invested in her name. | Mary also repaid her mortgage with the funds from the estate. The balance then remaining ($180,000) was invested in the name of the testamentary trust. |
| Income earnings | Susan received a return of 10% on the investment – $18,000 pa | The trust’s investment also earned 10% a year – $18,000 pa |
| The tax sting | The income was taxed in Susan’s hands – Susan paid $5,400 (30%) tax. | For tax purposes, $6,000 was treated as income of each child. No tax was paid. |
| Balance | The balance of $12,600 was then used to feed, clothe and educate the children. | The whole $18,000 was available to feed, clothe and educate the children. |
| Result | Over the next 10 years, Susan 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.
