A dilemma that many people face is how to provide for their spouse in
their will while still ensuring their children receive their
inheritance.
For example Joe has three adult children.
He separated from their mother 15 years ago. He wishes to leave his
assets to his children however wants to provide a home for his second
wife Jane. Joe creates a testamentary trust over the home he shares with
Jane to hold it for his children whilst granting Jane a life interest
allowing her to live in the home for the rest of her life. Followings
Joe’s death Jane decides she wants to live closer to her sister and the
trust sells the house and buys a new house. There are no Capital Gains
Tax (CGT) consequences on this transaction. However on Jane’s death the
new house passes to Joe’s children and the transfer will be subject to
CGT even if the property is not sold. Had Jane remained in the original
home, rollover relief would be available.
The disposal of assets within a
testamentary trust
should be approached with caution as there may be unintended taxation
consequences upon eventual transfer to the beneficiaries. Such outcomes
can apply to other assets such as shares and investments as well as
physical property.
While there are advantages of
creating life interests and testamentary trusts via wills such as the
creation of flexibility for the primary beneficiary, protection of
assets and potential tax planning benefits, such endeavours should be
discussed with legal and tax experts to ensure that the ultimate outcome
is understood and planned for.
If you have questions please contact
Andrew Marshall or
Janine Orpwood at
Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.
