Generation Planning: Protect Your Inheritance – Simple Legal Solutions

Sue is married with two (2) adult children and a grandchild on the way. Sue operates a small business as a sole trader. Sue is an only child and expects that she will soon receive a substantial inheritance from her elderly mother. Sue seeks legal advice as to what she should do to ensure her and her family receive the maximum benefit from her inheritance.

Sue should speak to her mother and ask that her inheritance be gifted via a Will creating a Discretionary Testamentary Trust. A Discretionary Testamentary Trust provides asset protection and allows the beneficiary to utilise tax minimisation strategies in respect of the income derived from the inheritance.

Similar to a Family Discretionary Trust, the trustee of a Discretionary Testamentary Trust has the discretion to distribute the income and capital of the Trust amongst a class of beneficiaries, including Sue’s children and grandchildren, in the most tax effective manner. Significantly, unlike a Family Discretionary Trust, minor beneficiaries can take advantage of a tax free threshold (currently $18,200.00) and receive distributions from a Discretionary Testamentary Trust up to this threshold tax free.

A Discretionary Testamentary Trust can also provide Sue with asset protection. If Sue’s business faces financial difficulty the assets held in the Trust are protected as far as possible from Sue’s creditors. Only assets held in Sue’s personal name can be used to satisfy any debts of the business.

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By Anna Roberts

Director, Solicitor & Family Dispute Resolution Practitioner

Anna Roberts