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Difference between Testamentary Trusts and 3-Generation Testamentary Trusts
We were the first lawyers in Australia to prepare Testamentary Trust wills. This was in May 1994. We stopped preparing them in 1997 when we invented the 3-Generation Testamentary Trust. These are the advantages:

1. A 3-Generation Testamentary Trust works for the next 3 generations. Your children can pass down the 3-Generation Testamentary Trust to their children. They last for up to 80 years – longer in South Australia.

2. The 3-Generation Testamentary Trust is permissive in nature. Each beneficiary (without reference to any other beneficiary) can set up none or as many 3-Generation Testamentary Trusts as they wish.

For example, you die leaving everything equally to your three children. The first child sets up one 3-Generation Testamentary Trust for herself. The second child sets up none – just takes the money (that is not tax effective but it is their decision). The third child sets up five 3-Generation Testamentary Trusts. Whey did the third child set up five trusts? You would need to ask them that question. Perhaps there were high-risk business assets and their accountant wanted to quarantine them. Perhaps they had a succession plan for their own children. Perhaps some of their inheritance is going to be invested overseas.

In contrast, the Testamentary Trust is mandatory. There is one trust per beneficiary. Each beneficiary must set up the trust. That is not flexible.

3. Sadly, a Testamentary Trust Will requires, that all assets go straight into a Testamentary Trust – it is a mandatory requirement of the Will. In contrast, in a 3-Generation Testamentary Trust Will, the beneficiaries decide what goes or does not go into a 3-Generation Testamentary Trusts. It is not always appropriate to automatically put every asset into a trust. For example, for a family home, your beneficiaries have 2 (often 3) years to sell it and not pay any CGT on the increased value from the date of your death. However, they lose that 2 years upside if you put a dead parent’s family home into a trust.

4. If all the beneficiaries agree they can take specific assets without stamp duty or triggering CGT. For example, you may have $1m in shares, $1m in real estate and $1m in cash. One child wants only shares. The other only wants real estate. The youngest wants cash. Not a problem. With a 3-Generation Testamentary Trust Will, they can distribute your estate in that way and not incur any stamp duty or CGT. In contrast, with a Testamentary Trust, the children have to pay stamp duty and trigger CGT to obtain that outcome.

5. Your beneficiaries can use these additional trusts which are in the 3-Generation Testamentary Trust Will: Divorce Protection Trust Legal Consolidated

Australian 3-Generation Testamentary Trusts – reduces CGT, income tax & stamp duty for up to 80 years from the date of death

Superannuation Testamentary Trust – stops the 17% or 32% tax on Super going to adult children (better than a Superannuation Proceeds Trust)
Bankruptcy Trusts – if a beneficiary is bankrupt
Divorce Protection Trust – if a child separates stops Family Court taking your money
*Maintenance Trust – if the beneficiary is under 18 or vulnerable

It is all about flexibility. As tax and superannuation lawyers we believe the art in preparing Wills comes down to one word: flexibility. You don’t know:

when you will die
what the tax laws will be
what assets you own (when the children put you into that nursing home your family home and shares are often sold)

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