Securing a young family’s future: Amanda & Rob's estate plan for long-term success

For many young families, estate planning may not seem like a top priority. But as parents, one of the most loving things we can do is ensure our children are looked after, no matter what the future holds. For Amanda and Rob, a young couple with two children—Noah, 5, and Sophie, 1—that meant creating an estate plan that not only protects their financial legacy but also safeguards the emotional wellbeing of their kids.

Let’s walk through how their estate plan, including a testamentary discretionary trust, is helping secure a brighter future for their family.

The Davis Family’s Priorities: Securing the Future for Noah and Sophie

Amanda and Rob are in their 30s and their children are their number one priority. They want to make sure Noah and Sophie are well looked after, no matter what happens. Their estate plan needed to do more than just distribute assets—it needed to consider their family’s unique needs:

1. Protecting the long-term benefit for the kids. If one parent passes, the other may re-partner, and Amanda and Rob wanted to ensure their assets wouldn’t be passed to a new spouse or blended family. Their focus was on safeguarding their children’s inheritance.
2. Transition of financial control. Since Noah and Sophie are so young, they are unable to make sound financial decisions for many years. Amanda and Rob didn’t want them to receive their inheritance as a lump sum when they turn 18, fearing they might spend it unwisely. They wanted to maintain control over how their children’s inheritance would be used as they matured.
3. Covering the costs of raising kids. From daycare fees to school tuition, raising kids is expensive. Amanda and Rob wanted to ensure their estate would provide sufficient funds to cover the costs of raising Noah and Sophie, whether one or both of them were no longer around.

Standard Wills vs. Testamentary Discretionary Trusts: What’s the Difference?

When it comes to structuring gifts under your Will, you have two main options: a standard Will or a testamentary discretionary trust (TDT). Amanda and Rob had to choose between these two options, and after considering their priorities, the TDT offered significant advantages.

• A standard Will gives your assets directly to the beneficiary. This means the surviving spouse or children would fully own the assets and could manage them however they choose.
• A TDT Will places the assets in a trust, managed by a trustee. The beneficiaries, such as a spouse and children, benefit from the income and assets held within the trust but do not directly own them. This structure allows for greater control and flexibility over how assets are used and can protect the inheritance from unforeseen circumstances like remarriage or financial mismanagement.

Protecting the Kids’ Inheritance with a TDT

A key concern for Amanda and Rob was what would happen to their assets if one of them passed away and the surviving parent re-partnered. With a standard Will, the surviving spouse would inherit the assets and have full control over them. This could lead to a situation where the assets are transferred to a new spouse or even future children from a blended family, leaving Noah and Sophie with less.

However, with a TDT Will, the inheritance is kept within the trust for the long-term benefit of Noah, Sophie, and the surviving parent. The trustee ensures the assets are managed in a way that prioritises the children’s needs and prevents the inheritance from being diverted elsewhere.

Managing Financial Control for the Kids

Amanda and Rob’s estate plan was their last opportunity to control their kids’ financial future. They knew it was crucial to get it right. With a standard Will, Noah and Sophie would receive their inheritance in a lump sum at 18 or, potentially, an older age specified in the Will. While this might seem reasonable, it left Amanda and Rob worried about how the kids would handle a large amount of money at such a young age.

With a TDT Will, financial control can be transferred gradually as Noah and Sophie mature. The trustee can manage the assets on behalf of the children, ensuring that funds are used for their benefit, such as education or living expenses, while giving them more responsibility over time as they become capable of making sound financial decisions.

Covering the Costs of Raising Kids

Raising kids is expensive, and Amanda and Rob wanted to make sure their estate plan could help with the financial burdens of parenting, especially if one or both parents passed away. Depending on the Will structure, there can be significant differences in how taxes are handled, which can ultimately affect the financial benefit for the children.

With a standard Will, the inheritance is invested, and the income earned is taxed at the surviving spouse’s rate, offering no flexibility in tax treatment.

In contrast, a TDT Will allows the trustee to distribute income among beneficiaries in a tax-efficient way, often resulting in tax savings. Additionally, Noah and Sophie can receive approximately $20,000 each year in tax-free income while they’re under 18, thanks to special tax treatment for excepted income. This structure can make a huge difference in covering the costs of raising kids, from daycare to school fees and extracurricular activities.

Guardianship and Parenting Guidance

Estate planning isn’t just about money; it’s also about securing the emotional and practical wellbeing of children. Amanda and Rob’s estate plan goes beyond finances to ensure Noah and Sophie’s day-to-day care is also considered.

They appointed testamentary guardians under their Will. If both Amanda and Rob pass away, these trusted individuals will step in as pseudo-parents, responsible for raising the children and making long-term decisions about their care until they reach adulthood.

Amanda and Rob also created a Letter of Wishes, a document providing guidance to their guardians about how they want Noah and Sophie raised. This includes preferences for education, religious practices, extracurricular activities, and more. The Letter of Wishes gives the guardians clear direction, ensuring the children’s upbringing aligns with their parents’ values and hopes.

Is a TDT Right for Your Family?

Amanda and Rob’s decision to incorporate a testamentary discretionary trust into their estate plan was motivated by their desire to protect their children’s financial and emotional wellbeing. A TDT provides flexibility, tax benefits, and long-term security that a standard Will simply can’t offer.

If you’re a parent looking to safeguard your kids’ future, a TDT might be the right solution for your family. Whether you’re concerned about financial management, remarriage, or providing for your children’s needs over time, a TDT gives you control, flexibility, and peace of mind.