You web browser may not be properly supported. To use this site and all its features we recommend using the latest versions of Chrome, Safari or Firefox

Signing Contractblog

What is the best way to provide for your partner, spouse, children or loved ones when you die? The answer may be a Testamentary Discretionary Trust (TDT). TDTs can offer significant advantages for beneficiaries and can last for generations.

What goes into structuring a TDT?

Trusts are a structure for management and distribution of assets. There are four main roles in a trust, including the:

  1. Trust maker (in a TDT this is the will maker), who provides the assets
  2. Trustee/s, who manages and distributes the assets
  3. Appointor/s, who can hire and fire the trustee
  4. Beneficiary / beneficiaries, who are entitled to receive income and/or capital distributions from the assets themselves

A Testamentary Discretionary Trust is a trust set up by your Will. TDTs are a valuable estate planning tool used to maximise flexibility, protect beneficiaries and minimise tax implications. They are especially useful where you have a vulnerable beneficiary who has a disability, is at risk of financial stressors such as a family breakdown or bankruptcy, or for beneficiaries who have difficulty managing money.

A TDT may also offer significant protection and benefits to beneficiaries who are not considered high risk. These TDTs are often controlled by the beneficiary themselves, and allows them to distribute the assets and income to themselves and their family.

Why are TDTs recommended?

TDTs offer great flexibility for managing and distributing an estate. By working with an experienced Estate Planner there are many outcomes that can be achieved that are simply not possible in a standard Will. For vulnerable beneficiaries, a friend, family member or company can be appointed as trustee to manage their inheritance for them, to ensure they are provided for well into the future.

One of the major benefits of a TDT Will is asset protection. Assets held in a well-drafted TDT can be protected from external creditors, as the money is held to be owned by the trust and not the beneficiary. Similarly, assets cannot be accessed in the case of a marriage or relationship breakdown, although they may be considered as a financial resource by the courts. There are many strategies that trustees can use to ensure money stays protected whilst offering maximum flexibility for beneficiaries under the guidance of an experienced financial advisor or lawyer. One example is that a beneficiary can loan themselves money from the trust to pay off their mortgage. This means they have the benefit of paying off the house, whilst still retaining the protection of the trust.

Tax advantages of TDT

TDTs also offer tax advantages in many circumstances. Whilst estate assets are generally not subject to tax upon distribution (with the exception of superannuation in some circumstances), any income that estate assets earn if invested will be taxed at the beneficiary’s income tax rate. If these funds are held in a TDT, the beneficiary has greater flexibility over when and to whom this income is distributed. Under TDTs, distributions to minor children receive normal tax concessions with a tax-free threshold of $18,200 plus a low income tax offset, depending on the child’s circumstances. Compare this to distributions to minor children under a normal family trust that will generally be taxed at the top rate of 46.5%. Depending on your circumstances and the value of your estate, a TDT can result in thousands of dollars in tax savings for beneficiaries and their families every year.

Who should be getting a TDT?

You should be considering a TDT in your Will if:

  • There will be a significant distribution to any beneficiary in your Will
  • You wish to provide asset protection to a beneficiary in cases of family law proceedings or bankruptcy
  • You have a vulnerable beneficiary who would benefit from someone else managing their inheritance.

Following your death, there are ongoing administrative costs for a TDT, such as accountant fees for lodging tax returns, so it is worth considering whether there are sufficient assets in your estate and discussing with a specialist Estate Planning lawyer about your particular circumstances.

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

Thank you for your feedback.

Related blog posts

Estate Planning
Bob Hawke’s daughter challenges will for larger piece of his estate

Just two months after former Australian Prime Minister Bob Hawke passed away, it has been revealed his daughter is preparing to sue his second wife over her share of the will. According to media reports this week, Mr Hawke left each of his children $750,000 through his will. But it is also alleged he left the rest of his estate to his second wife. Now, Mr Hawke’s daughter is gearing up for a legal battle to claim a share of her father’s estate. While everyone has a right to make a will leaving their estate to whomever they chose, wills may be challenged once a person has passed away. This legal option is made available generally to family members to ensure that those in need of...

Gettyimages 72381782 Resized Blog
Estate Planning
Avoiding 'Cat Fights' in Estate Litigation

With Karl Lagerfeld’s cat set to inherit a fortune, we are reminded of the need to be cautious to avoid “cat fights” in estate litigation. When the news of Karl Lagerfeld’s death broke, thoughts soon turned to the artistic designer’s beloved cat, Choupette. Choupette is said to have two personal maids, be fed from silver dishes and enjoy a luxurious grooming regime. It comes with no surprise that Lagerfeld described Choupette as a "rich girl" and "heiress" in interviews. While the contents of Lagerfeld’s Will has not yet been revealed to the public, Vogue estimates that the estate is worth over $380 million. It has been rumored for a number of years that Choupette is set to...

Rich Cat Resized For Blog
Estate Planning
5 reasons to get your affairs in order in 2017

After years of hard work and accumulation of assets, a substantial number of Australians do not have a current Will. Those who do, rarely review them. This post highlights some important reasons why you should have a Will and, if you do, why it might be a good time to review it. Everyone over the age of 18 should have a Will. A large proportion of Australians do not have a current Will. The five pointers below highlight why you should have a recent Will. If you already have a Will, you should review it regularly to ensure it reflects your current situation and wishes. A review does not necessarily mean that a change is required, but does ensure that changes in circumstances are not...

We're here to help

Start your online claim check now. Or, if you have a question, get in touch with our team.