On 1 July 2012, the government increased the tax free threshold from $6,000.00 to $18,200.00.
This means that testamentary discretionary trusts created within your Wills can now achieve significant tax benefits by utilising the increased tax free threshold for dependent spouses and children.
For example, if a husband passed away leaving a wife and two children aged under eighteen with his estate being valued at $1,000,000.00, based on an interest rate of 6% per annum, the husband’s estate would generate $60,000.00 per annum in income.
If the husband left his estate to his wife, she would be taxed at her personal tax rateand only the first $18,200.00 of the income would be tax free.
However, if the husband established a testamentary discretionary trust within his Will, the income each financial year could be allocated between the wife and the two children (each being allocated $20,000.00) with the first $18,200.00 for each of them being tax free. With the inclusion of the low income tax offset, this would result in little or no tax being payable on any of the income earned on the income.
This is only one of the many benefits of a testamentary discretionary trust.
If you would like to discuss the possibility of establishing a testamentary discretionary trust within your Will, please contact our office.