A Will is a document that enables you to:
- Revoke all earlier Wills,
- Appoint who you want as your executor, i.e. the person, people or trustee company who will administer your estate when you die,
- Appoint a guardian of any young children, and
- Nominate the beneficiaries (the persons or organisations who are to receive your assets) and the terms under which they are to receive those assets.
What happens if you die without a Will?
- Unless your estate is very small, someone will need to apply to the Court to be appointed as your legal representative. This can add delay and cost to the administration of your estate.
- Similarly, if you have young children and a guardian is needed, an application to the Court will have to be made.
- Your assets will be distributed to your family according to a set formula:
- Your property will not all go to your surviving spouse but will be divided with your children.
- If you have younger children they will receive their entitlement at age 18.
- If you do not have any family members who qualify, your assets will pass to government revenue.
- Your estate and beneficiaries may be subject to taxes that could otherwise be avoided.
How can a Will become out of date?
There are many events that could cause your Will to be out of date. Consider the following:
- Has anyone named in your Will died or changed their name?
- Are you still happy with the people you have appointed as either executor or guardian of any young children?
- Do you want to change your beneficiaries?
- Has your financial position changed?
- Are you interested in giving your beneficiaries more scope for minimising their tax or protecting your gift from their creditors or the Family Law Court?
- Do you still own all specific assets mentioned in your Will?
- Have tax laws changed in a way that could impact on your plans?
Whilst an integral part of estate planning, your Will is not likely to be effective unless other important areas are attended to.
We would be happy to co-ordinate review of your Wills with our preferred legal adviser at the appropriate time.
Many people believe that when they die, their Will governs all assets they own or control. This is not so. Your Will only governs your “estate” assets.
Your estate includes:
- All assets you own personally
- Your share of any asset you own as a tenant in common
- Any life insurance proceeds that are paid to your estate
- Any superannuation death benefits paid to your estate
- Your interest in any partnership assets, unless you have agreed otherwise
- Your right to recover any funds owed to you
- Any rights you held under any contract
- Your shares in a company
Your estate does not include:
- Assets you own as a joint tenant
- Assets you hold in a trust
- Assets owned by a company
- Superannuation assets paid directly to a dependant of yours
- Life insurance policy proceeds paid directly to a beneficiary
Caution needs to be taken when assessing the contribution of Will to the estate planning process as a substantial proportion of your estate may be non-estate assets.
The executor has a very important role. It is not necessary for an executor to have any special qualifications, but he/she must be a responsible person over the age of eighteen years whom you believe will properly carry out his/her duties. You should obtain prior agreement and consent of the person you wish to appoint as executor because he/she does not have to accept the position.
If, following your death, the executor refuses to act, anyone interested in your estate can apply to administer it. You should ensure that an alternative administrator is available and refer to this person in your Will.
Who Should be Your Executor?
A willmaker may appoint as executor any one or more of the following;
- A natural person;
- A trustee company; and/or
- A professional adviser.
Provision should be made for the appointment of a substitute executor to act in the event of the first-named executor being unable to act or continue to act. If more than one executor is appointed and one such executor is unable to act, the remaining executor/s is entitled to administer the estate.
Care needs to be exercised when selecting an executor. In most Wills, the principal beneficiaries are usually appointed as executor, e.g. spouse or children. However, in some instances, a willmaker may wish to appoint an independent executor or a combination of interested and independent parties.
In any event, the willmaker should ensure that he/she appoints someone who is competent, trustworthy and prepared to accept the task. The willmaker should consult with the executor before making an appointment and the executor should be informed of the whereabouts of the original Will. It is also a good idea to appoint someone who is likely to outlive the willmaker.
If you have young children, you need to appoint a guardian to care for your children should their parents die before they reach maturity.
The appointment of a guardian serves to avoid the possibility of disputes between family members.
You can make special provision in your Will to support your guardians in their responsibilities.
Why Your Will Should Contain Testamentary Trusts
What is a Testamentary Trust?
A Testamentary Trust is a trust established by a Will. A Beneficiary Testamentary Trust can be optional (the beneficiary can choose not to use it) discretionary (the beneficiary decides who will benefit) or a fixed trust or a combination of these.
Optional, discretionary, Testamentary Trusts are widely recommended for use in modern Wills because of the taxation and asset protection advantages that they offer when compared to a “standard” Will.
A standard Will offers little assistance to a beneficiary of an inheritance in relation to issues of tax efficiency and asset protection.
Why use a Testamentary Trust?
There are numerous benefits to using a testamentary trust.
- It may allow you to pay less tax on income and capital gains derived from inherited assets.
- Testamentary trusts may encourage beneficiaries to use any surplus income for the benefit of young children and grandchildren.
- Placing assets in a trust may protect beneficiaries involved in legal proceedings such as bankruptcy.
- Trusts may be able to protect assets to ensure they benefit the beneficiaries for as long as possible. This is especially important when a beneficiary is incapable of properly managing money for some reason.
- Using a testamentary trust may operate to help assets to remain within a particular family’s bloodline.
Establishing Testamentary Trusts in your Will provides your beneficiaries with maximum flexibility in dealing with their inheritance. The usefulness of a Discretionary Will Trust to a beneficiary will depend upon the beneficiary’s specific needs and circumstances at the time of your death so it is important that the terms of the Testamentary Trust are sufficiently wide to offer the beneficiary as many options as possible so as to provide freedom and flexibility.
What if a Testamentary Trust turns out not to be useful to my beneficiaries?
Unless special needs exist, your Will should be drafted so that the primary beneficiary has the power to decide to;
- use the trust for all, part or none of the beneficiary’s inheritance.
- wind up the trust at any time or
- pass the control of the trust in accordance with the primary beneficiary’s Will.
Because a Testamentary Trust can live for up to 80 years from your death it can provide flexibility, asset protection and taxation advantages for many generations of your family.
What Assets can be put into a Testamentary Trust?
Any assets belonging to you can be left to your beneficiaries via a Testamentary Trust on your death. Additionally, payments made to your estate as a result of your death i.e. superannuation death benefits or the proceeds of life insurance can also be directed to be held within a Testamentary Trust.
To provide maximum flexibility to your beneficiaries, your Will should be drafted to allow your beneficiaries to choose what assets belonging to you should be held within a Testamentary Trust.
What does a Testamentary Trust “look like?”
Instead of leaving an inheritance directly to a nominated beneficiary you leave the inheritance to your nominated beneficiary as trustee (or as one trustee) of a discretionary trust with wide discretionary powers.