Bloodline® Testamentary Trusts in action

This Solution in Action is designed for people:

  • with significant assets to pass to the next generation

  • concerned about their children's marriage or business venture

  • with a desire to protect their assets within their bloodline

  • with a desire to provide income distribution and taxation flexibility for their families

Scenario

Dawn and John Fraser own real estate valued in excess of $1 million, a share portfolio of $300,000.00, and some superannuation.


They have three children, Michael, 27, Grant, 25 and Susie, 23, all of whom are married.

Dawn and John have not changed their “standard Wills” since they first had children. Currently, those Wills give everything to their children in equal shares, once both Dawn and John have died.


Dawn and John are worried that Michael’s marriage may not last in the long-term. They are worried about the impact that a divorce would have, after their death, both on their son and the rest of the family, if property needed to be sold to payout Michael’s spouse in a divorce settlement.


Dawn and John are also concerned about Susie’s financial future. Susie operates a nursery business that she runs fairly impulsively. As a result, creditors are continually knocking on the door. They are concerned that any property they leave to Susie in their Wills may simply go towards paying off creditors, if the management of her business does not improve.



Estate Planning Objectives

Dawn and John want to ensure that after they have died:

  • The assets left to their children are not lost in the event that one or more of them divorce, face creditor demands or bankruptcy;

  • The value of capital assets remain in their family for generations to come; and

  • Their children have tax flexibility that will, in effect, allow them to educate Dawn and John's grandchildren with pre‑tax dollars and to minimise the tax burden by sharing income among a wide range of family members.

Strategy

Cleary Hoare recommended the following strategy:

  • Prepare new Wills for Dawn and John. In place of standard Wills, incorporate a specialised discretionary trust - a Bloodline® Trust - for each child in the new Wills.

  • The Bloodline® Trusts would begin on the death of the first of Dawn or John and operate for up to 80 years. The survivor of Dawn and John would retain full control of the trusts until the survivor's death. At this time the control of each trust would pass to the respective children. Control of the trust in the next generation will be critical.

  • The beneficiaries of each Bloodline® Trust will be the surviving spouse, the particular child and their bloodline.

  • Under the rules of each Bloodline® Trust, in‑laws, that is the spouses of children and grandchildren, may, at the trustee’s discretion, receive income, but capital is prevented from passing outside the bloodline.

  • Specific assets could be given to a particular Bloodline® Trust, or assets could be gifted in proportions among the three trusts, or a combination of both.

Outcome

Michael’s Bloodline® Trust will ensure that if, in the future, he is involved in a Family Court dispute, his inheritance will be protected from ‘attack’ by the Family Court - that is, the capital will remain in the family.


Susie’s Bloodline® Trust will ensure that if her business runs into problems, her share of the estate will be protected from the ‘attacks’ from creditors.


To the extent that the trustee decides to allocate income amongst minors, significant taxation advantages will flow. When income from a testamentary trust is distributed to a minor, they will be taxed at adult rates. For example, with the low income rebate the first $20,452.00 will be tax-free (Medicare Levy will be payable).


Each Bloodline® Trust will operate to ensure that control of the value of the family assets will remain in the hands of Dawn and John’s descendants for as long as is desired.


Summary

A simple or standard Will simply does not provide any protection for assets in the event of divorce or creditor attack in the next generation.


Leaving assets to beneficiaries in a Testamentary Bloodline® Trust provides the best possible asset protection, ensures the value of assets remain in the family, plus, as a bonus, significantly improves the taxation position, once Dawn or John has died, due to increased income distribution flexibility.


Contact

Please contact one of our specialist solicitors to discuss asset protection, estate planning or trusts in general, or your specific cases.


You are welcome to attend an initial personal consultation, at no charge or obligation, with one of our specialist solicitors, to discuss their individual circumstances.


Ph: 1300 363 401

Email: clearlaw@clearyhoare.com.au

Web: https://www.clearyhoare.com.au/contact

ADDRESS

Brisbane Office
Level 2,1 Breakfast Creek Rd
Newstead QLD 4006

Sydney Office
Level 9, 189 Kent Street

Sydney NSW 2000

Perth Office
45 Ventnor Avenue

West Perth WA 6005

CONTACT

Brisbane Office

Phone: (07) 3230 5222

Fax: (07) 3252 1355 

Sydney Office

Phone: (02) 9262 5550

Fax: (02) 9299 5849

Perth Office

Phone: (08) 9429 8883

Fax: (08) 9429 8800 

© 2020 Cleary Hoare Pty Ltd

Website by Interface Aus