Inheritance Tax and Trust Funds can be complicated to set up, here is a scenario that I’m often confronted with.
I would like to put $150,000 in Trust to each of my four children who are all in their 20’s. Will they have to pay inheritance tax or will they be exempt?
Generally, when people refer to Inheritance Tax they refer to the now abolished ‘death duties’. Although death duties have been abolished, there will always be taxation considerations when you receive an inheritance, including capital gains tax, income tax and any impact on current Centrelink, or other benefits being received by a beneficiary.
From your question, it appears that you intend to set up a Trust for your children, with each child to receive $150,000. If this is correct then the money will not actually form part of your children’s estate as it will be held by the Trust and administered by the Trustee, in accordance with the Trust Deed setting out the Trust rules. This can protect your children’s inheritance, in the event of the breakdown of their marriage, or de facto relationship as well as bankruptcy.
If your children are to receive an income from the Trust, then they will have to declare this income and in the majority of cases, they will have to pay tax on this income.
The important thing to consider when setting up a Trust for the benefit of your children, is how to minimise any adverse taxation possibilities that may affect your children. This can be done by ensuring you receive legal advice from an expert Wills and Estates Lawyer.
An expert Wills and Estates Lawyer will be able to consider your unique circumstances and work out the best way, to set up a Trust for the benefit of your children. They can draft the Trust Deed required, to set up the Trust and advise on whether there will be taxation implications on any of your children, and if there are any taxation implications on any of your children they can work out a plan to minimise these implications.
If you are interested in setting up a Trust for your children you need to seek expert advice to ensure that the Trust Deed is drafted to protect your children’s inheritance and not erode it. You also need to consider the person you would want to appoint as the Trustee of the Trust, as this is the person who will be dealing with your children’s inheritance. Deciding on the Trustee and the way in which to set up the Trust are important decisions.
If you need advice on setting up a Trust or a Testamentary Trust in your Will, to protect your family and loved ones, then you need to seek legal advice from an expert Lawyer. Graeme Heckenberg is a specialist and has been practicing in Wills and Estates for over 20 years.
If you are living on the Northern Beaches or surrounding peninsula give him a call today and set-up an appointment on 9221 0341.
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