Estate Planning

Testamentary trusts

Reduction in tax example

Here is an example of how a testamentary trust can reduce tax.

Your uncle has recently died and his estate has $2.5 million in cash that he wishes to leave to you.

You have a non-working spouse (who is also not in receipt of passive income) and two minor children (under 18 years of age).

You earn $180,000 pa in income, so you’re in the top marginal tax rate.

If you were to receive the $2.5 million inheritance directly and invested it in cash at 2% pa, earning interest of $50,000, you would pay extra tax of $22,500,  and extra Medicare levy of $1,000.