One of the most popular succession planning strategies today is the testamentary trust will. A testamentary trust is essentially a discretionary trust established by a will. They only operate upon the death of the will maker.
We have a client whose husband passed away suddenly several years ago leaving herself and 3 young children. The husband had an investment portfolio of $1.1m which he left solely to his wife who earned $110,000 pa. In the first year after he passed away, the portfolio generated an income of $94,600. The tax on the portfolio income was just over $37,000.
Had our client’s husband established a testamentary will with his wife & children as beneficiary’s, the income could have been distributed evenly to each child. (i.e. each child receives $31,533) As each child would have been taxed as an adult, the tax for each would have approximately $2,533. Total Tax on the investment income would then have only been $7,600.
Had my client’s husband established a testamentary trust, he would have saved his family $29,400 in tax in the first year alone.