An estate plan includes your Will as well as any other directions onAustralian Securities & Investments Commission
how you want your assets distributed after your death.
An estate plan is designed to help to protect your family and loved ones minimise taxation upon transfer of assets in a legal and logical manner, as well as ensuring your wishes are followed. It is important to seek professional advice, JBC Corporate can assist in creating a personalised estate plan based on your circumstances.
Leaving a Will is the most basic of estate planning strategies. A professionally drafted Will should ensure your estate is distributed to your beneficiaries in accordance with your wishes. In your Will, you are able to:
- Make gifts of assets or funds that form part of your estate;
- Establish trusts for the ongoing management of your assets for your beneficiaries;
- Appoint an executor and trustee; and
- Appoint guardians (for example, to look after your minor children).
The executor is responsible for making sure that the instructions in your Will are carried out, and can be:
- One or more persons; or
- A trustee company.
Your executor should be someone you trust and who is willing to take on the work and responsibility. If the executor you have chosen pre-deceases you or is unwilling to act as executor, your estate may not be distributed according to your wishes.
What cannot be in a Will?
- Asset(s) owned by a discretionary trust;
- Life insurance policies where you have nominated someone as a beneficiary;
- Superannuation and retirement income streams which have current ‘binding nominations’ to be distributed directly to dependents, or income streams which are ‘reversionary’ or where the trustee uses discretion to pay a beneficiary directly; or
- Assets which have ‘joint tenancy’.
Considerations for Minimising Tax for your Beneficiaries
- Nominate your spouse and dependant children to be the recipients of your superannuation. Death benefits paid to your dependants are tax-free.
- Incorporate a testamentary trust into your Will. This could create Capital Gains Tax savings as well as ongoing income tax savings for your beneficiaries, especially if you have young children or grandchildren. A testamentary trust comes into force upon your death and allows flexibility for the trustee to decide which of the allowed beneficiaries will receive distributions each year.
- Consider holding your key investments (other than your family home) in a family trust. This may create tax savings now as well as ongoing tax savings for your beneficiaries, note legal and tax advice is required.
- Bequeath assets with low or no Capital Gains Tax liabilities to beneficiaries with high marginal tax rates and vice-versa.
Asset Protection for Next Generation
If you are concerned your dependants do not have the ability to manage or protect your assets after you die, or if you feel the assets you bequeath may be at risk due to possible bankruptcy or legal action, you could consider using a family or testamentary trust.
The trustee appointed legally owns placed assets. The assets then may be protected from dependent’s creditors and also from a dependent who may not be capable of correctly managing money.
You will need to appoint someone you trust to act as a trustee or use the services of a trustee company.
Estate Planning Objectives
Life insurance can be an important instrument in helping you meet your estate planning objectives.
- You may wish to purchase enough life insurance to ensure your spouse and children have enough money to pay off your debts, meet large expenses and continue to live a comfortable life.
- If your estate will have large taxation liabilities, you may be able to purchase a life insurance policy so your beneficiaries can use this money to pay out your estate’s taxation liability without eating into their inheritances.
- If you are in business with partners, a life insurance policy on each partner may help protect the viability of the business and the financial position of the surviving partners if one of you were to die.
- If it is important that your dependants are given equal shares of your estate, a life insurance policy can be used to equalise your estate.
Enduring Power of Attorney
An Enduring Power of Attorney is a formal instrument by which one person empowers another person to represent them or to act in their stead for certain purposes. For example, if you are unable to manage your own affairs due to serious illness or accident, you may need someone to look after your finances. An Enduring Power of Attorney will give that person the authority to act on your behalf. If you do not have a Power of Attorney, a Public Trustee may be appointed and given the responsibility of handling your finances.
Minimising the Chance of Estate being Challenged
Some beneficiaries may be able to challenge the estate distribution if they feel they were not treated fairly. To minimise the risk of this happening, you could consider:
- Ensuring your Will is current, comprehensive and fair;
- Holding your key assets in a family trust (as these assets are owned by the trust and not you, their ownership is not affected by your death and are not subject to challenge);
- Having a binding nomination for your superannuation to be transferred to dependants; or
- Giving your executors adequate power to carry out your wishes.
Assets Protection in Divorce
With the high rate of divorce, many parents are concerned the inheritance they leave to their children could end up in the hands of their son-in-law or daughter-in-law if their child’s marriage breaks down.
If a child receives an inheritance in their own name, that inheritance will generally form part of the child’s assets, and therefore part of the matrimonial property. This could then be available to the Court for distribution upon the divorce proceedings.
However, if the assets are distributed to a properly structured testamentary trust, the inheritance may be kept apart and protected from a divorce property settlement. It is imperative that the trust be drafted appropriately to ensure this strategy is successful in protecting the assets.