• 27 Apr 2016

Jeff's big tax break

Testamentary Trust Wills (TTW)are not only for the rich, even in modest estates the additional costs may be minimal compared to potential tax savings.

Here is a little story about Brian & Angela who were happily married for thirty years. Sadly, after Brian died the grief was too much for Angela, who died soon after. Angela left her estate of $700,000 to her son Jeff on a testamentary trust. In the first year, the trust earned $35,000, a modest 5%. Jeff distributed the income equally to his two sons ($17,500 each), Billy aged 15 and Brett aged 13. He fully expended the income on his sons’ education and living expenses. Pursuant to section 102AE ITAA36 and under the current tax free threshold, neither child paid any tax on the distributions. Assume Jeff only had a marginal tax rate of 31.5%. He has saved $9,992.50 in tax in the first year alone! 

It is important that you make sure that you receive expert advice from all of your professional advisors to ensure that the advice you receive is of the greatest benefit to you.