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Estate Planning Lawyer: “So, you would like to prepare a Will?
Client: Yes, and I would like something as simple and brief as possible!
Estate Planning Lawyer: Could you briefly describe your assets and family structure?
Client: I have two investment properties, a house in the United Kingdom, a family trust, a business with interstate operations, two older children to a previous marriage and two minor children to my current marriage.
Lawyer: Let’s chat about that Simple Will idea…
Unfortunately, the above conversation is commonplace for an Estate Planning lawyer. For those clients with a modest estate, a “simple” Will might suffice, however, this is often not the case for client’s with complex estates or blended families.
So, what’s the difference between a Simple Will and a Testamentary Trust Will?
Generally, a Simple Will is testamentary document ranging anywhere between 1 – 10 pages which appoints an executor and distributes an estate in a straightforward manner i.e. to a spouse as primary beneficiary and then children if the spouse fails to survive the Will maker. More importantly, a simple Will does not offer any asset protection or tax minimisation benefits.
The fact that a Simple Will deals with the distribution of an estate in a straight-forward manner does not mean that members of the public should attempt to draft their own Wills using a “post office” or “internet Will”. In many cases, these DIY Wills are found to be invalid or partially invalid as they are missing essential clauses, or, a lawyer was not present to ensure the document was validly executed by the witnesses and the Will maker. Check out this article for a detailed discussion on DIY Wills.
A Testamentary Trust Will is a testamentary document ranging anywhere between 10-40 pages that establishes a Trust(s) upon the death of the Will maker. Like a family trust, the Testamentary Trust(s) is controlled by an appointed trustee (can be distinct from the executor of the Will). This protects the assets of the estate because they belong to the beneficiaries of the Trust rather than an individual person. This allows flexibility for how capital and income generated by those assets is distributed. Unlike a family trust, a Testamentary Trust is not ‘activated’ until after the death of the Will maker.
Some of the benefits in preparing a Testamentary Trust Will include:
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Asset Protection for the beneficiaries in the event of marriage or relationship breakdown;
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Asset Protection for vulnerable beneficiaries including spendthrift beneficiaries, disabled beneficiaries or beneficiaries with a drug, alcohol or gambling problems;
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Asset Protection for “at risk” professionals or beneficiaries who may face claims from creditors or bankruptcy;
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Protection of pension entitlements;
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Income splitting advantages e.g. adult children, minors and/or other relatives on low incomes;
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Income tax advantages for children under 18 (who are taxed at adult rates instead of penalty rates outside the Testamentary Trusts environment); and
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Flexibility for the Trustee to exercise discretion about management and investment of capital and to take account of changing needs of beneficiaries.
An experienced Wills and Estates lawyer will guide you in deciding which type of Will you should prepare taking into consideration a range of matters including the total value of your estate, existing businesses, your legal dependants and the relationship between the family unit.
