One of life’s disappointment for us is to see the beneficiaries of a recently departed client argue over the pickings from the estate. Too often we see clients die without a valid or up-to-date Will, leaving the division of assets up in the air and greed kicks in. We see it all too often.
The following tips will stop you turning in your grave.
1. Prepare a Will
It seems a silly observation but many people don’t even have a Will. In the absence of a Will, the Courts have to decide where your assets are to go. In all likelihood it won’t be exactly the way you would have wanted, and even if it is, why put your beneficiaries through the process of petitioning the Court for a ruling.
Prepare a Will and keep it current. Establish a safe place that contains a file of your important documents, including details of all assets including bank and web-based accounts and passwords. Tell your executors where to find the Will.
2. Regular review
Your Will should be re-examined and, if necessary, updated at least every 5 years as your beneficiaries’ circumstances change or upon the occurrence of significant events.
3. Marriage, Divorce, Separation and De factos
Many Australians are unaware that their Will becomes invalid as a result of marriage. If you fail to update your Will to reflect the marriage, a large part of your estate may be awarded to your new spouse. This may not be a problem for your first marriage, but if you wanted all or part of your estate to go to others (e.g.: children from a previous marriage or a relative in care) they may miss out.
A Will that states that it was made “in contemplation of marriage” is not revoked if the union contemplated takes place. Apart from this one exception, you will need a new Will if you marry.
In some jurisdictions, divorce will automatically render your Will invalid. In others, divorce will simply revoke your former spouse as your executor and any gift left that you may have left to the spouse. However, this revocation does not happen if the Courts believe that you intended to leave your former spouse a gift or if you re-published the Will after the divorce without changing the executor appointment or gift. It’s better to make a new Will after your divorce to ensure your intentions concerning your former spouse are clear.
Unlike divorce, marriage separation doesn’t invalidate your Will. The period between the start of a separation and the actual divorce is possibly one of the most important times to ensure that your Will reflects your changed wishes.
Failing to change your Will could see your spouse inheriting any property that you previously left to them; and if your spouse was named as your executor as well, then they are still entitled to take up this role.
3.4 De facto relationships
Committing to a de facto relationship does not have the same impact on a Will as marriage. As time passes in the relationship however, you and your partner each develop rights to the other’s property. These rights may be at odds with the wishes set out in your Will (e.g.: leaving your property to your children). If you separate, it is wise to formalise a property settlement as soon as possible, otherwise those rights persist. Preparing a new Will after the separation will re-set your wishes.
4. Your Superannuation is not part of your Estate.
Most people don’t know that your superannuation assets are not part of your estate. Your member’s balance sits in a separate entity from you and that entity is legally controlled by trustees. Those trustees have the power to decide who gets your member’s benefit on your passing.
To direct the trustees, you must complete a binding death benefit nomination. This details who is to receive the benefit. Binding nominations lapse after 3 years and need to be refreshed.
Non-binding nominations act as a guide only to the super fund trustees; the trustee will have the discretion (within the superannuation law) as to who receives the death benefit.
5. Jointly held assets are not part of your Estate
Assets that you own jointly (e.g.: in a joint bank account or property held as ‘joint tenants’) will automatically go to the other joint owner, and cannot be dealt with in your Will – ownership having already passed to the surviving owner.
Where an asset is owned as ‘tenants in common’, your share of the asset is counted in your assets at the date of death and can be dealt with in your Will.
6. Trusts or Company assets are not necessarily part of your Estate
Assets held within family discretionary trusts are not part of your estate and so do not form part of your Will. You don’t own the assets, the trust does, and unless the trust owes you money, your estate has no claim against the trust’s assets. You may be one of a few personal trustees or a director of the trustee company, even the Appointer to the trust, but your Will is not the document to transfer control to your successors. The trust’s trust deed should include provisions as to who takes on these roles after your passing. If the trust deed is silent on these matters, the deed can be amended during your lifetime to incorporate your wishes.
The same goes for assets held in a company that you might control. The company owns the assets, not you. You may own the shares in that company and those shares would form part of your estate and can be dealt with by your Will.
It is important to determine who controls these entities upon your passing.
7. A Letter of Wishes & Family Meeting
As a separate document from your Will, a Letter of Wishes is a non-binding document that helps to explain your Will and some of your thinking behind the decisions you’ve made. For instance, it may detail what you’d like to see happen with the trust or company that you used to control, and why. Your executor and family are not bound by the contents of the letter, but it lets them know what you wanted.
Although possibly a challenging exercise, you may also consider holding a meeting with your beneficiaries to explain your Will.
8. Tax on Bequests
The Australian tax system does not have separate death taxes, but there are tax consequences that are triggered when you pass.
8.1 Capital Gains Tax
When a beneficiary eventually disposes of an inherited asset, regard has to be had for the nature of the asset and when it was purchased. For what was a pre-CGT asset (purchased prior to September 1985) the cost base of the asset will be its market value at the date of your death. Tax would only apply to the growth in that value after death. For assets acquired by the deceased after the introduction of CGT, the beneficiary’s deemed cost base is the same as the cost paid by the deceased.
8.2 Main residence
Different rules apply to the disposal of your home, but generally tax does not apply to the transfer or disposal of your main residence.
8.3 Superannuation Death Benefits
Although your superannuation benefit doesn’t form part of your estate, if the fund’s trustees pay a benefit to any non-dependent (other than your spouse, younger children and a few other exceptions) a tax of 17% will be payable by the beneficiary. This could result in a beneficiary receiving less than you’d planned for them. This tax can be minimised or avoided with careful planning and strategic transfers over several years.
9. Testamentary Trust
Testamentary trust are trusts that are established as a result of your Will. They have many advantages, including allowing beneficiaries who are under 18 to be taxed at the more concessional ‘adult’ tax rates rather than penalty rates, as well as the opportunity to set aside funds for a beneficiary without actually giving the funds to them just yet. This is handy if the beneficiary has drug, mental health or matrimonial issues which may resolve over time.
Estate Planning is complex but necessary if you want those that you chose, to benefit after you pass. Don’t leave it to chance, or to simply trust people to do the right thing, often greed gets in the way (more’s the pity). Your estate will comprise your hand-fought-for assets and they should end up where you want them to. We can help to plan how your estate is handled. Give us a call on 03 9585 7555 or email us at email@example.com