What is an Estate Proceeds Trust?

While there is no substitute for pre-emptive comprehensive estate planning, it is a fact that the unexpected happens and circumstances arise where a person has not implemented estate planning strategies before their death.

One post-death strategy that can be used, in certain circumstances, is an Estate Proceeds Trust (‘EPT’).

An EPT, also known as a Post-Death Testamentary Trust, is a form of testamentary trust established after the death of a person, whereby a beneficiary re-gifts their inheritance from an estate to a trust.

Why use an Estate Proceeds Trust?

There are two main reasons for using an Estate Proceeds Trust (EPT):

• Asset protection to ensure that the asset is held in a protected trust environment and not subject to claims made against the individual beneficiary; and
• Tax minimisation.

When can an Estate Proceeds Trust be established?

An EPT can be established where the deceased died with a will that did not incorporate a testamentary trust or died intestate (without a will), however, there are certain limitations on the use of an EPT. Considerations are:

1. Only assets the beneficiary received from the deceased estate can be re-gifted to the EPT. While this may seem obvious, many assets may not pass under an estate, such as superannuation death benefits, life insurance proceeds, or if the assets are owned by another entity or held as joint tenants.
2. Because the beneficiary is “re-gifting” the benefit to the EPT, the benefit is not passing directly to the trust from the deceased person and is, therefore, subject to bankruptcy claw-back rules if the beneficiary is at risk.                                                      In contrast, if a testamentary trust is established under a Will during the life of the will-maker, the benefit does not pass directly to the beneficiary and will not be subject to bankruptcy rules, if the beneficiary is the subject of litigation or claims.
3. An EPT must be established within three years of the date of death of the beneficiary.
4. Children of the deceased under 18 years of age will be taxed at adult marginal rates (as excepted trust income ) in relation to any income they receive from an EPT (provided the beneficiary is not receiving income from any other source). The concessional rate of tax is not available to grandchildren of the deceased.
5. Assets, in excess of what the deceased’s children might have received on intestacy can be contributed to the estate proceeds trust, however, income generated from these additional assets will not be taxed at concessional rates.
6. The beneficiary (who is under 18 when the trust is established) must be the person who receives the trust assets when the trust vests.
7. There is no capital gains tax exemption on transfer of assets from the beneficiary to an EPT.
8. There is no stamp duty exemption on transfer of assets from the beneficiary to an EPT.

Estate planning is more than just a will

While establishing an EPT is a viable option, it is important to remember that effective estate planning is more than just a Will. Estate planning includes consideration of assets outside of a person’s estate as well as planning for retirement and incapacity considerations. A testamentary trust established under a Will is more effective and has less limitation than an EPT, making it preferable and more cost-effective to be pro-active and implement estate planning strategies prior to death. Pre-death planning also ensures that a person’s wishes are considered and can be effectively carried out.

Get advice about your estate planning or estate administration

For information or assistance on any estate planning or estate administration matter, please contact our experienced Wills, Trusts and Estate Planning Team at Bell Legal Group on (07) 5597 3366 or email law@belllegal.com.au.

Disclaimer

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice.