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Estate Planning – Wills, Joint Assets and Testamentary Trusts

Estate Planning – Wills, Joint Assets and Testamentary Trusts Author: Con Koulouris Estate planning is an essential part of any financial plan. It concerns the distribution of assets upon your death. In this part of our three-part series on Estate Planning, we will explore the writing and maintenance of a formal Will, issues surrounding assets that are jointly owned and what is involved in the creation of testamentary trusts. Wills Making and maintaining a current will is a critical part of any estate plan. A will allows you to dictate how your assets are distributed after you die. In the absence of a will, your estate will be distributed strictly in accordance with the relevant state laws applicable to you. This may not be in accordance with your wishes. Everyone, even with modest assets, should have a current and valid will. In a will you will nominate an executor who is responsible for carrying out your wishes and managing the distribution of assets. It is important to select a person capable of performing the duties required as the administration of an estate can be time consuming and will likely require investing, taxation, accounting and legal input. Joint Assets Jointly owned assets, usually the family home, cannot be disposed of through a will. When one owner in a joint tenancy dies, ownership automatically reverts to the surviving owner/s. In the case of a tenancy-in-common, two or more people independently share ownership of an asset and there is no automatic transfer of their share when one owner dies. For Capital Gains Tax purposes, the deceased’s portion of the asset is treated as a separate asset. Testamentary Trusts A trust is an obligation in which a person or entity, referred to as a ‘trustee’, is legally bound to hold and manage a property for the benefit of other people; the ‘beneficiaries’. A testamentary trust is created via a Will and is activated as a result of death. The Will will detail how the trust will operate and under what terms and conditions. In your Will you can draft these to suit your needs. Advantages of Testamentary Trusts Testamentary trusts can provide flexibility, allowing income and capital to be divided between beneficiaries at the time and in amounts determined by the trustee. This makes it possible to reduce tax since distributions to beneficiaries under the age of eighteen are taxed at adult rates rather than the usual children’s penalty tax rate. A trustee may also choose to direct distributions away from particular beneficiaries. Trusts and Taxation It is the duty of the trustee to lodge a tax return for the trust. If the trust makes a profit, either the trustee or the beneficiary who receives the distribution will pay tax. If the trust fails to distribute its income, the trustee is liable for payment of the tax liability for that trust. Where the trust distributes its income, the beneficiaries must include that in their own personal tax return to be taxed at their marginal tax rate. Issues when establishing a trust Wills that include provisions for Testamentary Trusts will likely require the input of a specialist lawyer. The legal and accounting costs involved in establishing a trust need to be taken into account before entering into such an arrangement. Estate planning is a complex area. We recommend you seek the advice of a qualified professional such as an estate planning specialist to ensure your wishes with respect to your assets are carried out in full.   General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

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