Young Families: Making a Flexible Will Saves Tax
Where there are children or grandchildren under 18 years of age, there are potential tax savings to be made from a Flexible Will.
The tax benefits of a Flexible Will are highlighted in the following example:-
Andrew and Phil did everything together. Tragically, on a fishing trip, their boat capsized and they both lost their lives. Andrew and Phil:-
- Were 37 years old when they died.
- They were both married with 3 children (aged 5, 7 and 11).
- They both earned around $35,000 a year and their wives earned about $30,000 a year.
- They had homes worth around $300,000 with a mortgages of around $100,000.
- They had no real savings, but had superannuation and life benefits worth $280,000.
Andrew and Phil could be described as typical young husbands.
On their death, the following occurred:-
|Will||Andrew made a Traditional Will. Under his will he left everything to his wife, Susan.||Phil made a Flexible Will in which he established a testamentary trust for his wife, Mary.|
|Allocation of Estate||Susan repaid her mortgage with the funds from the estate. The balance then remaining ($180,000) was invested in her name.||Mary repaid her mortgage with the funds from the estate. The balance then remaining ($180,000) was then invested in the name of the testamentary trust.|
|Income earnings||Susan received a return of 10% on the investment ($18,000 per annum)||The trust's investment received a return of 10% ($18,000 per annum)|
|The tax sting||The income was taxed in Susan's hands - Susan paid $5,400 (30%) tax.||For tax purposes, $6,000 was treated as income of each child. No tax was paid.|
|Balance||The balance of $12,600 was then used to feed, clothe and educate the children.||The whole $18,000 was available to feed, clothe and educate the children.|
|Result||Over the next 10 years, Susan paid a total of $54,000 tax.||Over the next 10 years, no tax was paid by the trust.|