Foreign Beneficiaries and the Benefits of a Testamentary Trust with a Corporate Trustee

International estate planning can be an extremely complex area because of the possible involvement of multiple legal jurisdictions which may have conflicting rules about inheritance, the ownership of property and the validity of certain legal acts.  It is certainly possible for international executors to act in local probate matters and foreign beneficiaries to benefit from the terms of wills drawn in New South Wales, or Australia more generally.  However, there can be certain tax consequences of being a foreign beneficiary of an Australian estate which mean that it is necessary to create a testamentary trust with a corporate trustee.

A testamentary trust with a corporate trustee has become an increasingly popular structure for estate planning for a number of reasons.  If a beneficiary is a foreign tax resident, in order to avoid having to pay the full rate of capital gains tax, without a capital gains tax discount it is necessary that the executor of the estate is an Australian tax resident.  This is because the government recently introduced legislation which denies a capital gains tax discount to those that are not Australian tax residents.  The only way to retain the discount whilst maintaining access to franking credits on shares is to have a testamentary trust with a corporate trustee.

This benefit is also additional to the other benefits of a testamentary discretionary trust which allow incoming streaming to minor beneficiaries for tax purposes, the shielding of the assets of the testamentry trust from beneficiaries that may become bankrupt have a spendthrift nature or are involved in litigation.  The protection of assets when the beneficiary is involved in a family law dispute is sometimes a motivation for establishing a testamentary trust as well but it must be noted that this is not a complete protection because the family court in Australia has broad powers in relation to property settlement orders which can include amending the terms of a trust or ordering the trustee of a trust to undertake certain acts.