Estate planning is about making sure your family is provided for and that your assets go where you want them to go in the event of death.
A Good Estate Plan will:
• Ensure the ownership and control of your assets pass to your intended beneficiaries;
• Minimize tax payable on those assets; and
• Protect assets when beneficiaries might be involved in difficulties e.g. bankruptcy or divorce.
A good estate plan should provide you with peace of mind and help avoid potential complications for your beneficiaries.
Two key areas that form part of your estate plan will be your Will and Superannuation.
In making a Will, it is necessary to appoint at least one executor and trustee. Generally, the executor and trustee can be the same person, although the two have different functions.
Executor Role – The executors role is to administer your estate in accordance with the terms of the Will. These may include as follows;
(a) Locating the Will and arranging the funeral;
(b) Ascertaining the assets and liabilities;
(c) Discharging the liabilities;
(d) Distributing the balance of the estate and preparing a distribution report and statement for the beneficiaries;
(e) Lodging tax returns and paying taxes and other liabilities owed by the deceased; and
(f) Applying for probate.
Trustee Role – The trustee role commences when the estate has been administered but some assets of the estate are held on trust, for example, until a beneficiary reaches a specified age.
Tip – Who to choose as an executor and trustee, and how many executors and trustees to choose, depends on the complexity of the estate and family relationships. So choose wisely and seek independent legal advice
In addition to making a Will, at the time of making your Will, the Will maker should also consider putting in place Powers of Attorneys. What is a Power of Attorney?
A Power of Attorney – are legal documents that let you appoint someone who can:
• make decisions for you (a substitute decision maker for you)
• support you to make and give effect to your decisions.
READ MORE: Challenges to your estate plan
If you make an enduring power of attorney, you appoint a substitute decision maker.
If you make an enduring power of attorney, the power endures (continues) even when you cannot make decisions due to an injury or illness.
Making an enduring power of attorney is one way of planning for the future. By making an enduring power of attorney, you can choose who will make important financial and personal decisions for you, such as where you will live or what happens to your house, if you are unable to do so in the future.
Tip – Who to choose as your Power of Attorney, and how many Powers of Attorneys to choose, depends on the complexity of the estate and family relationships. So choose wisely and seek independent legal advice
However you may also want to choose a general non-enduring power of attorney which is mostly used for a specific purpose and a fixed period of time. It is not enduring. For example, you may choose to make a general non-enduring power of attorney because you are overseas for a period of time and want someone else to make financial decisions for you during this time.
Letter of Wishes – What are letter of wishes?
A letter of wishes is intended to provide general guidance to the executor or trustee of a person’s estate following their death. While the document is not legally binding, it can have strong moral sway. A letter of wishes is a very personal document and can deal with a range of issues including:
a) wishes in relation to assets which the Will maker may have effectively controlled during their lifetime, but will not form part of their estate, for example assets in family trusts, superannuation funds or offshore entities or offshore assets;
b) the names of advisers or family friends from whom assistance should be obtained in relation to financial planning, accounting services, legal advice, insurance brokerage, stockbroking, religious guidance or other matters;
c) personal assets, particularly those with emotional value such as jewelry, items of collection, other personal effects or family collectables;
d) any charities or causes that the Will maker would like the beneficiaries to consider;
e) the location of important documents such as deeds, title records and financial information;
f) any wishes or directions as to how infant children should be cared for;
g) directions in relation to funeral arrangements and burial and;
h) any other matters that the Will maker would like their executors or trustees to take into account.
READ MORE: Trusts, companies and superannuation
Issues in Superannuation or Self-Managed Superannuation Funds
The payment of benefits from a Self-Managed Superannuation Fund, including benefits paid upon the death of a member, is covered by the rules contained in the Self Managed Superannuation Fund trust deed – not the Will of the deceased member.
The balance of a person’s superannuation benefits must generally be paid out on death, unless the person was in receipt of a pension from the fund and therefore there is a revisionary pensioner. However, under Superannuation laws it allows the payment of a superannuation death benefit to a spouse and/or minor children as one or more pensions, even where the deceased was in accumulation phase, as long as, the beneficiaries are members of the fund.
Another important aspect relating to death benefits from a Superannuation fund relates to what is called “Binding Death Benefit Nomination” (BDBN). Generally, it is the trustee of a Superannuation Fund who determines to whom a death payment is to be made. The trustee is guided by a nomination form provided by the member. However, if there is no nomination, the trustee may pay the benefits direct to the dependants or to the legal personal representative (executor) of the deceased estate, and therefore are not subject to the provisions of the Will, which may be preferable if there is the possibility of a challenge to the Will.
Tip – Whilst a Binding Death Benefit Nomination provides certainty, it is also inflexible. If a fund is an Self-Managed Superannuation Fund and the remaining members of the fund are completely trusted, it may be preferable not to make a Binding Death Benefit Nomination, but allow the trustee to decide the best way to pay out the benefits given to the position of the beneficiaries at that time. For example, if a potential beneficiary is at risk of insolvency or divorce, it may not be desirable to pay out benefits directly to them
The Risk of Challenges to a Will
As a general guidance, while each state and territory has its own relevant legislation, generally the relevant court will only make an order in favour of a person claiming an estate where a deceased person has not made adequate provision for the person making the Will. The Will maker should also take this into account when making his/her Will.
The best option should consider not just the tax implications, but also issues such as flexibility, control, and the protection of assets for future generations of the family.
Next Steps – If you are in doubt about the overall process in making your Will and Powers of Attorney, then you need to seek legal advice from your lawyer.
Tony Anamourlis (CTA) (SSA) is an International Tax Lawyer and Academic