In the 2011–12 Federal Budget, the government announced that it would amend the CGT provisions relating to deceased estates to ensure that they function properly. This includes legislating the current ATO practice of allowing a testamentary trust to distribute an asset of a deceased person without triggering a CGT liability.These proposed changes, together with the removal of the LITO in relation to the unearned income of minors, has brought into focus the continued use of testamentary trusts and their income tax and asset protection benefits.
This paper examines:
- the fundamentals of wills, probate and testamentary trusts
- the taxation of testamentary trusts (including whether income must be distributed each year)
- excepted trust income and distributions to minors
- adding to the corpus of a testamentary trust
- the asset protection benefits of testamentary trusts including:
- beneficiaries, appointors, powers and limitations of testamentary discretionary trusts
- the use of capital protected trusts and their taxation and duty consequences
- how to grant a lifetime occupation right without creating a life interest.