As published in The Q Review Summer/Autumn 2021 Magazine. Follow the link to Subscribe and receive your FREE copy each quarter!
In Part 1 of this series we discussed Estate Planning Stage One – Incapacity. Now we move to…
Estate Planning Stage Two – Death
Naturally, most associate estate planning with death and therefore the preparation of a Will. And of course, a Will is always an important part of the process.
While an argument can be made that everyone over the age of 18 should have a Will, we would recommend having a Will becomes particularly crucial for those that meet one or more of the following life stages –
- You become a parent,
- You become engaged, and especially once you are married,
- You are part of a committed defacto relationship with shared financial interests,
- You own your home,
- You own any other significant assets, investments or other forms of wealth,
- You expect to inherit significant assets, investments or other forms of wealth in the foreseeable future,
- You are over the age of 40.
As discussed in our Blog post of 18 December 2020 “The Curse of the Homemade Will” we strongly discourage the use of ‘will kits’ and other forms of homemade Wills.
As noted by Master Sanderson in the case Rogers v Rogers Young  WASC 208 –
“On numerous occasions when dealing with so-called homemade Wills, I have observed they are a curse…”
That is why when formulating an estate plan for Clients, we will always require that the implementation documentation, including the Will itself, be prepared by a solicitor. Simple affairs and simple Wills still require well drafted legal documentation.
However, depending on your circumstances, our advice will often be to consider a more complete Will that provides maximum flexibility at the time it is brought into action.
A well drafted, comprehensive Will, including provisions for permissive testamentary trusts (effectively meaning they are optional), gives you the very best chance to –
- Avoid what Professor Brett Davies of Legal Consolidated refers to as the hidden “death taxes” that exist in Australia, being capital gains tax, stamp duty, superannuation death benefits tax and (legally avoidable) income tax,
- Protect your wealth from your beneficiaries’ creditors (Bankruptcy Trusts),
- Protect your wealth from your beneficiaries’ relationship breakdowns (Divorce Protection Trusts),
- Protect your wealth in the event your beneficiaries are underage, are spend thrifts or are impacted by drugs or alcohol or other vices (Maintenance Trusts).
Superannuation Death Benefit Nominations
For many Australians their biggest assets will be their home and their superannuation. Considering what happens to your superannuation in the event of your death is therefore vitally important.
There are a number of methods through which your superannuation can be dealt with. Unfortunately, the most common involves the Trustee of your super fund making the decision about where your super savings will go. This occurs either where you have no nomination in place, or where you have only the most simple and common version of nomination which is ‘non-binding’ on the Trustee (ie. it is just a guide for the Trustee, they don’t have to follow it).
The preferred method is a ‘binding’ nomination which removes the discretion your fund Trustee otherwise has. If you have a self-managed superannuation fund, arguably the most effective is a “Death Benefit Agreement”. This creates a formal contract between you and the Trustee of your fund and stipulates not only to whom your superannuation savings will go, but also how (be it via lump sum payment or pension).
It is also very important to understand that your superannuation savings can either go directly to your chosen beneficiaries (bypassing your Will) or alternatively it can pass through your estate and therefore fall into the realm of your Will provisions.
There are pros and cons to each option, but if you implement a comprehensive Will including all the benefits afforded by the use of testamentary trusts, it can be preferrable for your super to pass via your estate, rather than going directly to your chosen beneficiaries.
Entity Succession Rules & Procedures in the Event of Death
As previously mentioned, if you have business or investment structures, how they are managed in the event of your death must also be considered in detail. The reason being, often the wealth these entities hold will also fall outside the jurisdiction of your Will. Instead, the succession of ownership and control is addressed within their governing rules.
Clearly estate planning is about so much more than just preparing a simple Will. In contrast, a comprehensive review and consideration of all elements of your business and financial affairs should be undertaken
before a strategy is determined and a plan implemented. This is where advisers with knowledge and experience across tax, superannuation, business and commercial matters provide real value to the process.
Contact me, Abhishek Puri – Director / Tax Technical Specialist / Senior Client Manager (Perth), today to arrange your FREE, No Risk, Initial Consultation to discuss how a Trust could benefit you and your family.