Estate Planning


Estate Planning
You may have heard the term "Estate Planning". Estate Planning is more than simply making out a will – it involves planning a person's financial affairs so as to create wealth and also as to how such affairs will be dealt with on death.

Estate Planning embraces:

  • Wealth creation and asset accumulation;
  • Wealth preservation;
  • Tax minimisation;
  • Consideration of outstanding debts, e.g. mortgages;
  • Providing sufficient assets for dependants;  and
  • Distribution of the Estate (including building in protection so that your estate is passed to whom you want it to be passed to and not someone else eg a divorced spouse or one of your children).
The Estate Plan

Should be:

  • “tax friendly”;
  • flexible;
  • aim for simplicity – the best plans are usually fairly simple;
  • regularly reviewed.
Where to from Here?

Three documents form the foundations of an effective Estate Plan. These are:

  1. Financial Plan – this aims to create wealth for your enjoyment and the enjoyment of your family;
  2. The Power of Attorney – this deals with the position up to death;  and
  3. The Will – this deals with the position from the time of death.
1. The Financial Plan

Financial Plans can be fairly simple, but very effective; a little time invested now can reap rich rewards and a pleasant lifestyle at a later stage and it need not be painful.

Financial planning is a Specialist area requiring special expertise and we work closely in conjunction with accredited Financial Planners of your choice.

2. Powers of Attorney

With a Power of Attorney, one person appoints another to act on his or her behalf. It is usually invoked where the person loses mental capacity and needs the Attorney to act on their behalf. For example, if you are in a car accident and in a coma, or if you suffer from Alzheimer’s Disease. In these circumstances, someone will need the power to deal with your assets and investments.

Having an Enduring Power of Attorney in place ensures that your assets will be protected in the event that you lose capability to deal with your own affairs. If you do not have a Power of Attorney, your assets may be managed by the Government and your personal wishes may not be given effect. It is therefore important to have a Power of Attorney, especially when considering your long-term financial wishes.

3. Wills

A current and valid Will is of the utmost importance – to specify how your assets are to be distributed after death, and to deal with other matters such as your burial or cremation instructions.

Many people are concerned that if they leave assets through their estate to their children and their children's relationships disintegrate then their children's spouses may take a share of the parent’s hard earned assets. We can assist you deal with this potential outcome.

Wills are often not made in a tax effective manner.  For example, most people do not understand the impact Capital Gains Tax can have on their Estate and their beneficiaries.

Another aspect often overlooked is Social Security - and the fact that a bequest in a Will to a person on Social Security may mean they are no longer eligible for that benefit while the Person is Alive. Much of Estate Planning focuses on the position after death. 

While a Will only takes effect upon a persons’ death, Estate Planning has a significant role while a person is still alive and can often be of more importance. For example, many people dream about having sufficient assets to enjoy a secure and pleasant lifestyle but do not know where to start. Securing your future can be simple-let us help you on the journey.

A Will may be simple, but the increasing complexity of affairs may mean that a more intricate Will is needed. This may be achieved through a Testamentary Trust Will.

There are different types of Testamentary Wills-we can advise you on the type which best suits your needs

Avoiding Pitfalls of Testamentary Trusts

If testamentary trusts are going to be a viable option for a Willmaker and the estate beneficiaries, there are important issues to address:

1. Unwanted testamentary trusts

If a primary beneficiary:

  • does not have a use for a testamentary trust; and
  • has not been given one of a protective trust because of the Willmaker’s concerns about the primary beneficiary’s ability to handle finances;
It is important that the executor be given the discretion to avoid transferring assets into the trust. (If the primary beneficiary has to shut down the unwanted trust, unnecessary capital gains tax liabilities may be triggered.) It is also important to recognise that changes might occur between the date of the Will and the date of death, eg changes to the beneficiary’s circumstances or to taxation laws, and may not be possible to redo the Will.

Examples of tax law changes impacting on testamentary trusts include:

  • The family trust election rules (which treat estate testamentary trusts more leniently than beneficiary testamentary trusts), and
  • The capital gains tax roll over relief provisions for "active" assets for small businesses that make it desirable to give the trustee of a testamentary trust the power to permanently or temporarily exclude a beneficiary.
1.Need for fixed or more restricted trusts

There are times when a fixed or very restricted testamentary trust is more appropriate. For example, there is usually no need for a beneficiary testamentary trust to be established until the primary beneficiary turns at least 18 years and decides at that time whether or not a beneficiary testamentary trust is appropriate. (Tax concessions apply to minor beneficiaries receiving income from their prospective share of an estate.)

2.Inflexible testamentary trusts

An executor's discretion clause may also be important to enable none or only some of the estate assets to be distributed to a testamentary trust. For example, it might be desirable that a residence pass to a primary beneficiary personally if the primary beneficiary is going to reside in the residence and claim the CGT principal residence exemption. This exemption does not apply to residences owned by companies, superannuation funds or trusts other than "bare" trusts.

The executor, rather than the trustee, has been given the discretion (but needs the prior consent of the primary beneficiary). This means that if bankruptcy or means tested pension eligibility rules are tightened, the primary beneficiary cannot be said to have the power to exercise that discretion.

3. Need for Adequate Funding

Whether there is sufficient funding for testamentary trusts will depend on the size of the estate, the number of primary beneficiaries and whether assets such as insurance and superannuation death benefits will be paid into the estate.

4. Unnecessary tax liabilities

Too often Wills are drafted without input from a Willmaker’s accountant or financial planner. This can mean that tax and other practical issues are ignored and unnecessary tax liabilities are generated as a result, eg an unnecessary taxable death benefit eligible termination payment of superannuation death benefits. It is also not unheard of for Willmakers (and even their lawyers and other professional advisors) to fail to appreciate the significance of the current and future ownership of assets such as insurance policies, superannuation "entitlements", allocated pensions, loans to companies and trusts, unallocated net discretionary trust assets and inheritances.

5. Lack of Long Term Planning

Like discretionary trusts established by Deed, many testamentary trusts fail to address how control is to be shared if the trust continues past the primary beneficiary’s death. It is strongly recommended that dispute resolution formulas be included in the terms of trust to cover this situation.