Farm succession planning – using trusts to protect their inheritance

Testamentary discretionary trusts are powerful tools, and can provide beneficiaries with a plethora of options to efficiently manage their inheritance.

Asset protection

Receiving an inheritance via a discretionary trust allows beneficiaries to manage their inheritance separately from their personal family wealth. This can assist beneficiaries who might be considered ‘at risk’ individuals, being people who are more likely to be sued than most others. In a litigious society, there are many ‘at risk’ occupations. At the very least, any beneficiary who is a business owner or an employer of workers should be considered ‘at risk’, and therefore likely to benefit from a testamentary trust strategy.

Testamentary trusts can also be used strategically to aid the defence of an inheritance from family law proceedings.  One way to achieve this is to permit income from the trust to be distributed to anyone in the family group, but only permitting capital to be released to descendants. This is  sometimes called a ‘bloodline trust’.

Testamentary trusts can also be used to protect a beneficiary with a history of poor decision making, by limiting or staggering the release of capital from the trust.

Tax planning opportunities

Income earned from an inheritance will attract income tax. Beneficiaries who are on a high marginal tax rate might benefit from being able to distribute income amongst their family group – for example, to a spouse earning less income (and therefore in a lower tax bracket). Additionally, current legislation permits minors to be taxed at adult rates on income from a testamentary trust, providing further tax planning opportunities.

This is the fourth in a series of 6 articles on farm succession planning that aim to help you start the process to ensure an efficient transition of your wealth to your intended beneficiaries.

All of the articles and resources are available on our website.

If you have any questions or if you would like to start the planning process, contact Trent McGregor today in Bendigo on 5434 6666 or Castlemaine on 5472 1588.

Trent McGregor

Wills & Estate Planning Lawyer