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The Flexible Will For Young Families

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:

IssueAndrewPhil
WillAndrew 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 EstateSusan 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 earningsSusan 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 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.
BalanceThe 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.
ResultOver 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.

Ross Mason
Author:
Ross Mason

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