A Trust is a useful vehicle for transferring assets and reducing a tax liability, and are often done inter vivos (that is made during the life of the person who will benefit).
However, a Trust can offer the same advantages after you pass – a Testamentary Trust.
Taxable income generated by the trust can be retained by the trust or allocated to the beneficiaries in a tax-effective way. Minor beneficiaries are not subject to the punitive minor tax rates for normal income, rather taxed only at marginal rates.
The trustee can be given discretionary powers in relation to the distribution of income so this can make a testamentary trust a flexible tax-planning vehicle.
It is crucially important though to avoid adding assets to the Trust with other assets that haven’t been listed in the Will. The beneficial tax treatment will stop, and accidentally intermingling assets in a testamentary trust can cause taxation to increase significantly.
A better alternative could be for a new benefactor to purchase bonds that name the beneficiaries. This means they will have access to money in the future without paying the very high tax rates applicable to minors.
