Author: Lara Wentworth, Partner
Wills are often thought of as being simple and straight forward.
The reality is, if you want to protect your wealth for generations to come, this is very rarely the case.
If you operate a business or own assets in trust, there are many considerations which arise when drafting a Will for a Testator in order to put together a document that truly reflects the Testator’s intentions.
If specific questions aren’t answered correctly or worse not at all, the beneficiaries could lose a large portion of their inheritance to the tax office or an estranged spouse or even leave their trustee in bankruptcy.
Here are just a few important considerations when planning a Will.
Superannuation and life insurance policies
Superannuation and life insurance benefits can fall outside the Will maker’s ability to gift them in a Will.
They are often dealt with by the Trustee of the fund which is governed by the fund policy and any valid binding nominations made by the Testator prior to their death. Your binding death nomination may need to be updated every three years to remain valid. It is possible to channel your super benefits through your estate to be dealt with by your Will, however this is not the default method.
In insolvent estates, gifting the proceeds of a life insurance policy to pay debts will void the statutory immunity that is available to such proceeds. In other words, if you die insolvent leaving only your life insurance policy, such policy will be immune from your creditors unless your Will provides that the proceeds are to be used to pay your debts.
Self Managed Super Funds need different considerations when drafting a Will. Issues of control of the fund upon the death of the last surviving Trustee will be crucial if the fund contains specific property that you wish to give away. An appropriately drafted binding death nomination that is provided for by a deed may need to be considered.
Property ownership – joint tenancy v tenancy in common
Did you know that ownership or interest in land and property by way of joint tenancy also falls outside the Will maker’s powers to gift in a Will? The surviving tenant receives automatic survivorship of the total interest.
On the other hand, ownership by way of tenancy in common entitles the Will maker to gift his/her share or interest in the land or property to a beneficiary in the Will and the surviving tenant remains the title holder of his/her share only.
Gifting to an existing Trust or creating a Testamentary Discretionary Trust
What is a Testamentary Discretionary Trust (TDT)?
A TDT is created by the terms of a person’s Will and just like a family trust set up during a person’s lifetime (inter vivos trust), it has a Trustee and a range of beneficiaries that can include children, grandchildren, spouse and other relatives as well as an Appointor.
There are different implications that can arise when gifting an estate to an existing trust as opposed to a TDT, such as tax treatment of minor beneficiaries. In the case of a TDT, minor beneficiaries are treated as adults for tax purposes when paying income. In other words, minor beneficiaries are entitled to receive the full tax free threshold (currently $18,200) as opposed to the minor’s rate available in an inter vivos trust (currently $416).
Control of an existing trust after death
Owning assets via an existing trust means that those assets cannot be bequeathed in your Will as you are not the legal owner of those assets.
So what can you do? Ensuring that the control of the Trust is passed to someone who will ensure that the Trust continues to benefit the interests of the beneficiaries (which in most cases includes your children and spouse), is crucial. It is not enough to appoint someone in your place as Appointor in your Will, the Trust Deed itself should contain clear and effective succession clauses.
For a tailored estate plan or Will that fits your specific circumstances and needs, contact our estate planning expert Lara Wentworth, Partner on 131 LAW or email@example.com
Veritas Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.