In this video I step through the 5 key factors for when you should consider recommending a Testamentary Trust to your clients.

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So I’ve got a little rule of thumb here about when I think clients could get value from a testamentary trust. So I know you’re all lawyers and there’s always that disclaimer that every client needs specific legal advice and tailored advice to the factual circumstances. But let’s just say, I think these are the four factors to have in your head when you’re reviewing your client fact find to decide if it’s worth putting testamentary trusts on the table in terms of the options available to them. Okay, So firstly, I think that it’s best to have at least $500,000 of investible assets in the testamentary trust after the estate administration is complete. Now that $500,000 is not a magic number. It’s not in the legislation or anywhere. It’s really just reflecting the fact that there is a bit more compliance with the testamentary trust once it’s set up.

It’s very akin to setting up a family trust in the sense that once that trust is set up so in the case of a testamentary trust, once the test data has died and the estate has been administered and the assets are in the testamentary trust, there’s going to need to be a tax return and financial statements done for that trust every year. And so there’s a little bit more compliance work. If you’ve got a client who just uses h and r block for their tax or does their own tax, then moving to an accounting firm where they’ve got a testamentary trust to administer, that could be a pretty big increase in their compliance. Versus if you’ve got clients who already have family trusts in place and there’s just going to be another one that’s a testamentary trust, you know, there may actually not be that much more compliance, but this $500,000 reflects the fact that if your beneficiary is just going to take their inheritance, pay off the mortgage, upgrade their car, and everyone goes on a holiday to Disneyland and there’s really not going to be much else, then the testamentary trust benefits may not really be there.

So I kind of figure if you’ve got these benefits, the income and asset protection benefits that I’ll talk about in a second, over at least $500,000 worth of assets in a Testa trust, usually those benefits will well exceed that additional compliance cost. Secondly, so the second criteria is if there’s going to be minors. So firstly, we want to make sure the estate is large enough to justify a testamentary trust. Secondly, it really helps if there are minor beneficiaries who can receive the tax-free income from the trust. And I’ll show you some examples to get your head around that tax-free income. But you know, whether there’s minor kids, minor grandchildren, or

Even nieces and nephews, that’s worth considering. Secondly, if it’s important to the test data that there is protection from relationship breakdown or bankruptcy risks over the inheritance pool, then a testmaentary trust is really worth considering for them. And lastly, if you’ve got a circumstance where a beneficiary can’t manage their inheritance appropriately, now that could be because of a disability substance abuse, gambling problems, or there is spend thrift, or even sometimes they’re just, you know, a minor at the moment and can’t manage it for themselves. So a lot of the time you might find that most of your clients walking through the door will tick at least one of these boxes.