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Personal estate planning is not only about having a Will. Estate planning involves all the assets a client owns or controls - including assets not covered in a person's Will.
Simply put, estate planning involves that on a person's death, the appropriate assets go where that person wants them to go, when they intended them to get there.
Therefore, a good estate plan aims to make sure that, on a client's death:
- There are sufficient assets available to meet the client's wishes; and
- That transfer of ownership and/or control of those assets pass to the appropriate person or entity; and
- that ownership and/or control passes at the right time.
In conjunction with a good estate plan, there may be other considerations including:
- Planning for future life, including Powers of Attorney and Appointments of Enduring Guardian.
- Advising on and setting up special-purpose trusts.
Wills
Do I need a Will?
Having a Will is a basic and central component of estate planning. We can draft a range of Wills – from the very basic to the very complex.
After hearing the benefit of a testamentary trust, most of our clients choose Wills which incorporate optional testamentary trusts.
Most of our “mum and dad” clients choose the testamentary trust because they want to be able to minimise tax by splitting income with those children.
They also know that, if there are taxable gains involved for a particular asset or assets, the use of a testamentary trust may reduce the Capital Gains Tax payable.
Other Will – drafting strategies may include –
- Some of our clients have kids who are under 18 years of age and therefore mum and dad want a separate trust set up just in case one or more of the kids has a greater need than the others (“children’s support trust”). This may simply be because some of the kids are younger, or to take into account a possible future disability (eg. a car accident).
- Often Mr and Mrs simply want everything to pass to the survivor. However, sometimes Mr and/or Mrs want to make sure that, if for example one of them died and the surviving spouse remarried, their assets pass to the kids rather than to the surviving spouse (“directed inheritance”). Similarly, in a “blended family” situation, Mr or Mrs may want the kids of a previous relationship to benefit rather than the current spouse/partner.
- If one of the children has an intellectual disability, then that child may not be able to look after him or herself. In such a case, a separate trust would usually be established to look after that child. Careful consideration would need to be given to the trustee(s) and the beneficiaries of that trust.
- Giving a person the use and benefit of an asset during their lifetime, and on that person’s death the asset passes to a different beneficiary (“Life Interests”).
- Asset protection – whether for the surviving spouse or one of the children.
Assets outside a person’s Will
Wills only deal with the property owned by a person individually and in their own right. However, many people own assets through different structures and entities. If this is the case then other documents may need to be checked to make sure the assets held in those structures/entities pass to the intended beneficiary. Assets which may or would not form part of a person's estate include:
- Assets owned as joint tenants (eg. often the family home).
- Life insurance proceeds (where someone else is the policy owner or nominated beneficiary).
- Assets owned within a family discretionary trust –
- Who is in control of the trust? This means not only the trustee, but also the “Appointor” (i.e. the person who has the power to remove and replace the trustee). The trust deed may need to be checked to work out who is in control and how that person passes on control
- If a company is a trustee of the family trust, we may also need to check the shareholding and constitution of the company.
- Company assets - the shareholdings and constitution of the company would need to be reviewed to check the transmission of the shares on death and which shares have the voting rights in the company.
- Superannuation death benefits (that are paid directly to a dependant) – death benefits payable from super may simply be discretionary in the hands of the trustee, depending on whether any nomination is binding or non binding. If a person wants super death benefits to pass to a particular dependant, the deed may need to be checked to see whether a binding death benefit nomination can be completed.
Sufficient Assets
Perhaps the most important component of an estate plan is to ensure there will be at least sufficient assets to meet the client's estate funding objectives.
This involves a careful analysis of the funding needs and available income and assets to meet those needs.
Where there is a clear estate funding shortfall, the client should be presented with the options for addressing the issue. These can include life insurance (as a short term measure), investment strategies (as a medium to long term measure) or a combination of these approaches.
Some clients (especially older clients) will have accumulated sufficient assets such that all their estate funding needs could be met and indeed exceeded.
Transfer of Ownership and/or Control
This component of the definition encompasses a very broad range of issues. The sorts of questions that may be raised can include:
- How will ownership and/or control of each asset be transferred?
- Is there a current, valid Will in place?
- Who are the beneficiaries for life insurance and superannuation benefits?
- Joint tenancies and other ownership structures
- Is the estate plan tax effective (eg. rather than transferring an asset to the spouse, should a testamentary trust be considered)?
Timing
Timing can be critical to the estate planning process for a number of reasons. These include establishing:
- The age that the younger beneficiaries should receive their inheritance (eg. at 18, 21 or 25 years of age);
- When the assets should be sold;
- Who should sell them (ie. the executor or the beneficiary);
- When debts must be repaid (eg. an unexpected call on a business loan could result in the business failing).
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Planning for future life
- Powers of Attorney
- Appointments of Enduring Guardian
Special purpose trusts
The law allows income to be concessionally treated for tax purposes in certain circumstances. For example, superannuation death benefits may be able to be placed in a special “superannuation trust”. This may then allow income to be paid to child beneficiaries at concessionally-taxed rates.
In certain circumstances, similar benefits apply to life insurance benefits, personal injury compensation and funds intended to look after children upon the breakdown of marriage.
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