An effective estate plan requires more than preparing a valid Will. It is important to consider various aspects of your life, financial and personal circumstances when planning your estate and to take steps to ensure your assets are protected for future generations and left only to your intended beneficiaries. Like most plans your estate plan should be reviewed regularly, particularly when significant changes occur in your life.
Making a Will
A valid Will determines who should benefit from your estate when you die and who will be responsible for administering it – your executors / trustees. A Will can be simple or complex and can also appoint guardians for minor children and provide directions for funeral arrangements.
Testamentary discretionary trusts
A testamentary trust is a trust created in a Will that comes into effect after the testator dies. A trustee is pre-appointed to manage the trust and may choose how and when the deceased’s assets are distributed to a selected beneficiary or category of beneficiaries. The flexibility and control in distributing assets has potential benefits such as protecting at-risk beneficiaries and safeguarding assets from third party creditor claims.
Powers of Attorney
A power of attorney appoints a trusted person to look after your legal and financial affairs if you are unable to do so yourself. The power of attorney can specify the extent of powers an attorney is authorised to exercise. It can operate for a limited time, such as while you are travelling overseas, for a one-off transaction, or take effect indefinitely from the time you lose mental capacity. This is known as an enduring power of attorney.
Superannuation and Binding Death Benefit Nominations
Death benefits of a superannuation account are paid to an eligible dependant determined by the fund trustee, or an eligible dependant in accordance with a Binding Death Benefit Nomination (BDBN). A valid BDBN ensures that your superannuation benefits are paid to your nominated beneficiary and your choice of beneficiary can determine how the benefits are taxed when received.
This is an important consideration in estate planning as many people assume that their superannuation automatically forms part of their estate to be disposed of in accordance with the Will.
The effect of a trust is the separation of the beneficial, from the legal ownership of property. The trust can protect assets, and property and income may be distributed to deliver favourable taxation outcomes. Holding assets in a family trust can have many advantages if the trust is correctly set up and effectively managed – the trust must be compliant, properly structured, with consideration of stamp duty and taxation implications.
Probate is a grant made by a Court that proves the Will of a deceased person, vests title to estate assets in the executor and authorises that person to deal with the estate. The executor is responsible for paying estate liabilities, distributing gifts, selling and transferring property, arranging estate tax returns and generally finalising the estate in accordance with the Will.
There is no legal requirement to obtain probate and applying for a grant may not be necessary for small estates or where property was held jointly with a sole beneficiary. In such cases, the deceased’s share of jointly held property can be transferred to the surviving owner by completing the required documents with the relevant authority or institution.
Dealing with a deceased estate can be distressing and often involves complex issues at a time of grief and loss. Executors and administrators may need to liaise with a range of stakeholders to ensure the terms of the Will are upheld and should obtain professional guidance in carrying out this important role.
Letters of Administration
An application for Letters of Administration is made by an interested person when a person dies intestate or the executors named in a valid Will are no longer alive or are unable to fulfil the role. A grant of Letters of Administration will appoint the applicant as administrator of the estate, allowing him or her to deal with the estate assets and liabilities in the same manner as an executor.
Dying without a Will – dying intestate
When a person dies intestate, his or her estate is distributed in accordance with a statutory formula. The rules of intestacy prescribe the order of distribution to the deceased person’s next of kin, which is designed to reflect society’s expectations as to who should benefit from the estate. Such a distribution, however, may not reflect the real wishes of the deceased, resulting in undesired consequences such as:
- family members or friends missing out from an inheritance;
- a disproportionate distribution of assets between family members or leaving out more needy beneficiaries;
- a distribution to a family member with whom the deceased shared no significant or meaningful relationship.
Will contests / family provision claims
A family provision claim is based on an applicant’s right to be adequately provided for by a deceased person where a Will (or proposed administration on intestacy) fails to do that. A successful claim will result in a redistribution of the estate assets in favour of the applicant.
A person must be eligible to make a family provision claim and strict time limits apply. Generally, an eligible person includes a spouse, former spouse, de facto partner or child of the deceased. Certain individuals who were in a close personal relationship with the deceased or who were dependent on the deceased at the time of his or her death may also be eligible.
Family provision claims are complex however most are settled out of Court with the assistance of an experienced lawyer.