Details
A client has passed away. Will states cash distributions to the client’s two sisters and the balance to be left to the client’s son as a testamentary trust.
Cash distributions to sisters have been paid. Trust has not been set up as yet per the Lawyer.
Assets of the estate include:
- 3 Motor Vehicles
- BMW
- Jaguar
- Aston Martin – this has been sold with proceeds being added to the estate
- Cash
The client’s son would like an interim distribution paid to consist of Cash ($20,000), and the BMW transferred to him before Christmas. The Executor has agreed to the distribution and will sign VicRoads transfer documents relating to the vehicle.
Our question relates to the tax treatment/implications of the above-mentioned interim distribution? Are there tax consequences for the beneficiary given the Testamentary Trust has yet to be formally established? Or are there tax consequences for the estate itself?
Answer
We need to be clear on what a testamentary trust is… it is a trust created by the terms and conditions of the Will.
So, the trust is already in existence, and its operations are as defined in the Will.
There may be some confusion here, but the Lawyer can clear things up for you.
If the Executor has agreed to the payment of $20k and the transfer of the BMW, then it is probable he is also the Trustee of the Testamentary Trust and that the transfer of these assets complies with the terms and conditions set out in the Will.
We do not think there are tax implications as these are transfers of capital and not distributions of income.
Income earnt by the Deceased Estate and the ongoing Testamentary Trust will be subject to income tax.