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Tax Effective Post Death Testamentary Trusts for Children

If a will does not contain a testamentary trust, there is a limited window and circumstances in which a Post Death Testamentary Trust can be established, providing the deceased has children under the age of 18 years. This tax effective window is created by provisions in the  Income Tax Assessment Act 1936 .

Normally minors are taxed at a higher rate than adults to prevent high-income earners reducing tax by diverting income to their children, or income splitting.

However, the  Income Tax Assessment Act 1936 provides certain income will not be taxed at the special high rate including certain trust income.

A surviving spouse, for example, who has received property under a will can, within three years, place the property in a Post Death Testamentary Trust for children of the deceased, and any income derived from the trust is excepted income, minimising the tax paid by both the spouse and the beneficiary children, who are taxed on this income at normal adult rates.

This benefit only applies if the terms of the Post Death Testamentary Trust provide that the beneficiary of the trust will receive all the capital of the trust when the trust ends.

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