Estate Planning Manual – avoid the 4 Australian Death Taxes

Proper Estate Planning ensures that your estate goes to those you care about and not the Tax Man.

3-Generation Testamentary Trusts Wills

We were the first lawyers in Australia to prepare Testamentary Trust wills. This was in May 1994. We stopped preparing them in 1997 when we invented the 3-Generation Testamentary Trust. These are the advantages:

1. A 3-Generation Testamentary Trust works for the next 3 generations. Your children can pass down the 3-Generation Testamentary Trust to their children. They last for up to 80 years – longer in South Australia.
2. The 3-Generation Testamentary Trust is permissive in nature. Each beneficiary (without reference to any other beneficiary) can set up none or as many 3-Generation Testamentary Trusts as they wish.

For example, you die leaving everything equally to your three children. The first child sets up one 3-Generation Testamentary Trust for herself. The second child sets up none – just takes the money (that is not tax effective, but it is their decision). The third child sets up five 3-Generation Testamentary Trusts. Why did the third child set up five trusts? You would need to ask them that question. Perhaps:

• there were high-risk business assets and their accountant wanted to quarantine them.
• they had a succession plan for their own children.
• some of their inheritance is going to be invested overseas.

In contrast, the old-fashioned Testamentary Trust is mandatory. There is one trust per beneficiary. Each beneficiary must set up the trust. That is not flexible.

3. Sadly, a Testamentary Trust Will requires, that all assets go straight into a Testamentary Trust – it is a mandatory requirement of the Will. In contrast, in a 3-Generation Testamentary Trust Will, the beneficiaries decide what goes or does not go into a 3-Generation Testamentary Trust. It is not always appropriate to automatically put every asset into a trust. For example, for a family home, your beneficiaries have 2 (often 3) years to sell it and not pay any CGT on the increased value from the date of your death. However, they lose that 2 years upside if you put a dead parent’s family home into a trust.
4. If all the beneficiaries agree they can take specific assets without stamp duty or triggering CGT. For example, you may have $1m in shares, $1m in real estate and $1m in cash. One child wants only shares. The other only wants real estate. The youngest wants cash. Not a problem. With a 3-Generation Testamentary Trust Will, they can distribute your estate in that way and not incur any stamp duty or CGT. In contrast, with a Testamentary Trust, the children have to pay stamp duty and trigger CGT to obtain that outcome.
5. Your beneficiaries can use these additional trusts which are in the 3-Generation Testamentary Trust Will:

• • 3-Generation Testamentary Trusts – reduces CGT, income tax & stamp duty for up to 80 years from the date of death
  • Superannuation Testamentary Trust – stops the 17% or 32% tax on Super going to adult children (better than a Superannuation Proceeds Trust)
  • Bankruptcy Trusts – if a beneficiary is bankrupt
  • Divorce Protection Trust – if a child separates stops Family Court from taking your money
  • Maintenance Trust – if the beneficiary is under 18 or vulnerable

It is all about flexibility. As tax and superannuation lawyers we believe the art of preparing Wills comes down to one word: flexibility. You don’t know:

1. when you will die
2. what the tax laws will be
3. what assets you own (when the children put you into that nursing home your family home and shares are often sold)

Does a “Simple Will” protect your family?

Many people believe that their affairs are simple. You may wish to simply leave everything to your spouse, and if they die before you, then to your children. Simple. Right? Unfortunately, this is rarely the case.

This Manual has been prepared to alert you to some of the pitfalls of preparing a “Simple Will”. A “Simple Will” may seem to fulfil your needs on the surface, but there are often many other issues that you may not have considered.

Ask your Accountant, Adviser and Tax Lawyer how you can be certain that your estate goes to the family – and not the Tax Man.

Estate Planning is about taxation and superannuation penalties

When you make a homemade Will, you risk not drawing it up properly or not expressing your intentions clearly enough. It’s also easy to create a tax liability which your beneficiaries will have to pay. Finally, a DIY Will is more likely to be contested, which means the whole process of giving away your assets could end up in Court.

That’s why, when you make your Will, it’s important you have it drafted by someone who understands the law and can advise you on the best way to make sure your assets end up where you want them to. And that means engaging a solicitor.”

Be very careful in dealing with non-law firm-produced documents. It is not worth the risk.

Do homemade and Post Office Wills work?

Homemade and Post Office Wills are not tax-effective. They are also often informal. Or, do not work at all.

Will the Tax Man smile when I die?

Imagine $1.5 trillion “up for grabs!” That is the projected total value of estates from Australians who die in the next 20 years. The question is, who gets that money: the Tax Man, Trustee Companies or your family?

It all depends on your Accountant, Adviser, and Tax Lawyer coming together to carry out Estate Planning before you die.

Careful planning can reduce Capital Gains Tax, Stamp Duty and other death taxes. The most basic protection is to include a Testamentary Trust in your Will. Most Wills made before 1998 do not have even this protection. A 3-Generation Testamentary Trust and Superannuation Testamentary Trust provide the best protection for your family.

Does it coincide with your wishes? Who benefits from your property when you die? A Government-imposed Will rarely corresponds with your wishes as to how much you leave the Tax Man!

Children under 18 in Wills?

If you die leaving orphans then you can recommend Guardians to the Family Court in your Will.

You can consider:

• Does your Trustee conserve your estate for your children’s education?
• At what ages do your children receive the trust capital and in what amounts?
• If a child dies before you, who then receives the property? Your grandchildren, your other children or charities?
• What happens if one of your children is bankrupt or of unsound mind when you die?

Capital Gains Tax on your family home when you die

Death and Probate Duties were abolished by 1981. However, in 1985 the Federal Government introduced Capital Gains Tax. Capital Gains Tax now earns the Australian Federal Government more money on deceased estates in a single year than in the cumulative history of death duties.

Contrary to what Treasurer Paul Keating told us back in 1985 when he introduced CGT, Capital Gains Tax and Stamp Duty are applying more often to your family home. Even your pre-1985 family home can be subject to Capital Gains Tax.

A 3-Generation Testamentary Trust is the most effective safeguard to put into your Will to dampen the effects of Capital Gains Tax and Stamp Duty.

This is an example of a Will without a 3-Generation Testamentary Trust:

Tom always wanted to build his retirement home on the canals where he had purchased a block a few years ago. Unfortunately, Tom died before realising his dream to build on the block.

As a dutiful husband, Tom left everything to his much-loved wife Jenny.

Little did Tom know, but Jenny never shared Tom’s vision to live by the canals. Their 2 children did share Dad’s vision. Jenny decided to give the children the block of land. After all, it was now interfering with her aged pension and pharmaceutical entitlements.

The gift made the children excited. The block had increased in value to $175,000. However, the children were less excited when they got a Stamp Duty bill of over $4,200.

Later, Jenny gets a notice from the Tax Office  to  pay  Capital  Gains  Tax  of

$28,000.00 on the “disposal” of the block. (“But I just gave it away!” she lamented)

The nightmare continues when Centrelink  advises  Jenny  that  the  gift is subject to the depravation rules.

Tom could have put 3-Generation Testamentary Trusts into his Will. Tom’s Will then leaves everything to his wife, children and extended family. Tom also makes his wife the Trustee of the 3-Generation Testamentary Trust. Jenny controls the assets but does not own the assets for tax purposes.

Does that mean that Tom’s estate goes to Tom’s mother-in-law and Uncle Harry? Do the children have control over what Jenny does with her husband’s estate?

No, to both questions.

Jenny has full control of who gets what from the estate. With a Testamentary Trust, Jenny can give everything to herself or give some things to the children, grandchildren or any of the extended family as she so wishes. With her Accountant’s help, Jenny can take advantage of the lower income tax rates paid by some members of her family. Now that is flexibility.

CGT on pre-1985 family home at death

The ATO is angry that the family home is exempt from CGT. It tries to claw your family home back into the CGT regime, whenever it can.

Intangible capital improvements made to a pre-CGT asset are separate from that asset. This includes an improvement to a family home. The ATO confirmed this in Taxation Determination TD 2017/1.

The ATO Taxation Determination TD 2017/1 is entitled:

“Can intangible capital improvements made to a pre-CGT asset be a separate asset for the purpose of subsections 108-70(2) or (3) Income Tax Assessment Act 1997?”

Even a pre-1985 family home can suffer CGT at death

The Determination sets out the Commissioner’s position on whether intangible capital improvements are a separate CGT asset from the pre-CGT asset to which those improvements are made. This is provided that the relevant thresholds are satisfied. Subsection 108-70(2) provides that if an improvement is made to a pre-CGT asset then that improvement is treated as a separate asset. This is if its cost base is more than the improvement threshold. The amount is increased by the inflation rate each year. Further, it is more than 5% of the capital proceeds from the event. The ATO separates works undertaken on pre-CGT properties and subjects the improvements to CGT.

Let’s say you do an improvement (‘new asset’) on your family home. You then run a business from home. The new asset is subject to CGT. Therefore, you pay CGT on that new asset when you sell the home. The new asset, by law, forms part of your home. This would include a new bedroom or garage. But under CGT it is considered a separate asset. A very unfair outcome.

Flexibility: 3-Generation Testamentary Trust?

In the above case, Jenny could have merely distributed the block to her children through Tom’s Will. Even if the transfer took place years after Tom’s death, the transfer is direct from Tom to his children. Therefore:

1. There is often no stamp duty payable because Jenny did not own the land – she merely controlled the land in the Testamentary Trust
2. There is no “disposal” of the property. Therefore, Jenny does not have a Capital Gains Tax bill – CGT Generation Skipping.
3. Alternatively, the asset could have been kept out of Jenny’s hands to protect her Centrelink

Is it only minors who benefit from the 3-Generation Testamentary Trust Will?

In a Family Trust and Bare Trusts the Tax Man penalises your children, grandchildren and beneficiaries. This is when they are under 18 years of age and receive trust income over $416 per year. Above this amount, minors pay tax at the highest marginal tax rate (66% in some instances). This is under Division 6AA Income Tax Assessment Act 1936.

Nevertheless, there are over 800,000 Family Trusts in Australia. They are still popular. This is because you can hunt down adults who are on low marginal tax rates. This is for the current financial year. And next year you can hunt down and use the low marginal tax rates of others.

In a 3-Generation Testamentary Trust Will, there is an exemption to the draconian Division 6AA. Section 102AG states that minors in your 3-Generation Testamentary Trust Will are exempt from Division 6AA.

Therefore, minors can take advantage of the low marginal tax rate of an adult.

However, even without this wonderful Section 102AG tax break the 3-Generation Testamentary Trust Will is still worth having. The section 102AG tax exemption for minors is just icing on the cake.

The Section 102AG exemption is only one of the many advantages of a 3-Generation Testamentary Trust.

Other advantages of a 3-Generation Testamentary Trust Will

The 3-Generation Testamentary Trust Wills are not just about saving tax. Other advantages include:

• Divorce Protection Trust
• Bankruptcy Trust
• Protects your right to sell your parents’ home up to 3 years after their death – tax-free
• Special Disability Trust – and still get Centrelink benefits
• Reducing the 32% tax on the dead person’s superannuation
• Considered Person Clause – to stop people from challenging your Will

Can each Beneficiary ‘turn on’ the different death trusts as they each see fit?

Q: The front page of the Legal Consolidated 3-Generation Testamentary Trust Will states that it contains the following trusts:

• 3-Generation Testamentary Trust
• Super Testamentary Trust
• Bankruptcy Trusts
• Protective Maintenance Trusts
• Divorce Protection Trust
• Severability Rights Protection

Does each beneficiary have the right to set up one or all of these trusts? This is independent of each other? Can the executor also set up the trusts?

A: That list is just some of the death trusts. Your Legal Consolidated Will contains many more trusts. They are discretionary and flexible. Therefore, each beneficiary sets them up as required. If a beneficiary is ‘vulnerable’, suffering a divorce etc… then the Executor will turn them on and off, as required. However, the executor always acts in the Primary Beneficiary’s best interests. Further, many trusts in our Wills can be set up many years after you die.

As a taxation law firm, we are amazed, since we introduced the 3-Generation Testamentary Trust in 1994, to the flexible use of the trusts. We are often telephoned by deceased estate lawyers, accountants and financial planners who excitedly tell us what they have achieved with the 3-Generation Testamentary Trust after the willmaker is dead. The different trusts and combinations of trusts are being used in ways we could never have imagined. It brings us joy and we continue to provide the greatest flexibility in our 3-Generation Testamenaty Trust Wills. We seek to empower lawyers, accountants and financial planners to continue to innovate using our 3-Generation Testamentary Trust Wills after the Willmaker is dead.

Testamentary Trusts vs 3-Generation Testamentary Trusts

We prepared our first Testamentary Trust Will in May 1994. We stopped preparing them in 1997 when we invented the 3-Generation Testamentary Trust. These are the advantages:

1. A 3-Generation Testamentary Trust works for the next 3 generations. Your children can pass down the 3-Generation Testamentary Trust to their children. They last for up to 80 years – longer in South Australia.
2. The 3-Generation Testamentary Trust is permissive. Each beneficiary (without reference to any other beneficiary) can set up none or as many 3-Generation Testamentary Trusts as they wish.

For example, you die leaving everything equally to your three children. The first child sets up one 3-Generation Testamentary Trust for herself. The second child sets up none – just takes the money (that is not tax effective but it is their decision). The third child sets up five 3-Generation Testamentary Trusts. Why did the third child set up five trusts? You would need to ask them that question. Perhaps there were high-risk business assets and their accountant wanted to quarantine them. Perhaps they had a succession plan for their children. Perhaps some of their inheritance is going to be invested overseas.

In contrast, the Testamentary Trust is mandatory. There is one trust per beneficiary. Each beneficiary must set up the trust. That is not flexible.

3. Sadly, a standard Testamentary Trust Will requires, that all assets go straight into a Testamentary Trust – it is a mandatory requirement of the Will. In contrast, in a 3-Generation Testamentary Trust Will, the beneficiaries decide what goes or does not go into a 3-Generation Testamentary Trust.

   It is not always appropriate to automatically put every asset into a trust. For example, for a family home, your beneficiaries have two (often three) years to sell it and not pay any CGT on the increased value from the date of your death. However, they lose that two-year upside if you put a dead parent’s family home into a trust.

4. If all the beneficiaries agree they can take specific assets without stamp duty or triggering CGT. For example, you may have $1m in shares, $1m in real estate and $1m in cash. One child wants only shares. The other only wants real estate. The youngest wants cash. Not a problem. With a 3-Generation Testamentary Trust Will, they can distribute your estate in that way and not incur any stamp duty or CGT. In contrast, with a Testamentary Trust, the children have to pay stamp duty and trigger CGT to obtain that outcome.
5. Your beneficiaries can use these additional trusts which are in the 3-Generation Testamentary Trust Will:

• • 3-Generation Testamentary Trusts – reduces CGT, income tax & stamp duty for up to 80 years from the date of death
  • Superannuation Testamentary Trust – stops the 17% or 32% tax on Super going to adult children (better than a Superannuation Proceeds Trust)
  • Bankruptcy Trusts – if a beneficiary is bankrupt
  • Divorce Protection Trust – if a child separates stops Family Court from taking your money
  • Maintenance Trust – if the beneficiary is under 18 or vulnerable

It is all about flexibility. As tax and superannuation lawyers we believe the art of preparing Wills comes down to one word: flexibility. This is because you do not know:

1. when you will die
2. what the tax and other laws will be
3. what assets you own (upon getting dementia the children put you into a nursing home, your family home and shares are often sold)

Can the Testamentary Trusts be ‘turned on’ by my family BEFORE I die?

Q: My lawyer and accountant are very excited as to what my Beneficiaries can do with the many available trusts in my Legal Consolidated Will. Can any of them be ‘turned on’, before I die?

A: I know that Testamentary Trusts are better than Family Trusts, have bankruptcy and family court etc… But your Will only starts with you die. The Will is dormant until then. All the wonderful protection in your Will is only available when you die! The ultimate sacrifice to your family!

Make sure your parents have 3-Generation Testamentary Trust Wills.

Does a beneficiary have to set up a Testamentary Trust?

Sadly, when the Will only contains a standard Testamentary Trust, the beneficiary is forced to set up a Testamentary Trust. This is when the Will maker dies. However, this is not the case with a 3-Generation Testamentary Trust. With a 3-Generation Testamentary Trust Will, each beneficiary can set up one or more Testamentary Trusts – or none.

Say the beneficiary is getting the dead person’s family home. The beneficiary is at liberty to just transfer the home directly into their name. This is without the need to set up the testamentary trust.

Is a Family Home automatically part of a Testamentary Trust?

In a standard Testamentary Trust, all assets in the dead person’s Will must go into the Testamentary Trust. This is blunt and silly. In a 3-Generation Testamentary Trust, the beneficiary has the choice. You can:

• take the asset absolutely; or
• you can put the asset in the 3-Generation Testamentary Trust.

So when your parents or spouse die you can put their family home into your name. Or you can put the family home in a testamentary trust.

There are two reasons to NOT put your dead parent’s or spouse’s home into a Testamentary Trust:

1. you lose the extra 2 or 3 years to sell the home CGT-free
2. you may want to live in the home and retain the CGT-free status

An argument to keep a family home in the testamentary trust is for asset protection, bankruptcy and divorce. If you put the asset in your own name absolutely and then go bankrupt or get divorced then the asset is lost. But if you keep the family home (or any asset) in the testamentary trust then it is protected by the Bankruptcy Trust and the Divorce Protection Trust.

Alternatively, you may be left a rental property. If you put this property in your own name and live in it then it starts to attract the principal place of residence exemption. This is from this point on.

Can a willmaker be a discretionary beneficiary of their own 3-Generation Testamentary Trust?

Yes, from a tax perspective, you can use the dead person’s generous marginal tax rates for up to 3 years from their date of death. This is for any 3-Generation Testamentary Trust.

Normally, a trustee pays the highest marginal tax rate on the trust’s net income. This is each financial year. So you would expect the Executors of the dead person’s Will to pay the highest rate of tax. This is while the executors go through the process of getting Probate and administering the Will.

But when the Executors lodge the first deceased estate trust tax return they apply for a concessional rate of tax.

The concessional rate is the same as the dead person’s income tax rate. Remarkable, this is the benefit of the full tax-free threshold.

However, the concessional rate only applies for the first 3 income years from death.

To always ensure this advantage, it is not uncommon to make the Will maker themselves a discretionary beneficiary of the 3-Generation Testamentary Trust in the Will.

Who are the trustees of each of the 3-Generation Testamentary Trusts in my Will?

The Primary Beneficiary controls the trust for their percentage of your estate. To begin with, the trustee is automatically that Beneficiary. Of course, that Beneficiary can change the Trustee as that Beneficiary sees fit.

E.g. You have 4 children. They are getting 25% each after you and your spouse die. One of the children is called Beth. Upon your death, Beth is the trustee of her testamentary Trust which has a 25% interest in the trust. There is a change to the law 20 years after you die, and there are now tax incentives in making a company the trustee. Accordingly, Beth changed the trustee to a company to save tax. Thirty years later Australian tax laws change again and there are tax advances in having Beth’s children the trustee. Beth, therefore, changed the trustee from her company to her children.

Is there any value in a 3-Generation Testamentary Trust if I leave everything to my wife?

This is a common question. It comes about because when the husband dies the wife gets his superannuation without suffering the non-depenancy tax of 32%. In contrast, everyone usually pays 15% or 30%, which the Superannuation Testamentary Trust often reduces to zero. When you leave everything to your spouse the Superannuation Tesmtnery trust has no value. The question suggests that the only value of a 3-Generation Testamentary Trust is the Superannuation Testamentary Trust. That is not correct. 

There are two taxing points for super from dead people:

1. The first is the immediate payment of the non-dependency tax. Adult children who have a Superannuation Testamentary Trust in their dead parent’s Will and spouses often escape this death tax. I agree.
2. But, what about the income generated from the proceeds of the super? Say you leave $3m in super to your spouse and it generates a yearly income of $180k. There is often no tax payable on this for the entire 80 years after you die.

Further, the 3-Generation Testamenaty Trust has a lot more than just a Superannuation Testamentary Trust. If you love your wife then you will build a 3-Generation Testamentary Trust Will. Therefore, after you die:

1. if she remarries your assets are protected by the Divorce Protection Trust
2. if she goes bankrupt your assets are protected by the Bankruptcy Trust
3. if she loses mental capacity she is protected by both the Disability Trust and the Special Disability Trust
4. the income she gets from your assets and the superannuation that was paid out to her is reduced
5. the capital gains tax from the sale of your assets is reduced, often to zero

Also, your wife may die before you. In this case, your Beneficiaries gain the benefits of the 3-Generation Testamentary Trust Wills.

Is Probate more complex or expensive when the Will contains Testamentary Trusts or 3-Generation Testamentary Trusts?

There is no added expense in getting Probate. Your executors can usually do their Probate online for free. This is on the Probate Office’s website.

However, there is an ongoing yearly expense in maintaining testamentary trusts. This is the fee that your accountant charges to do the trust tax return each year. However, the savings in tax is usually worth this accounting cost. They operate for up to 80 years from the date of the Will maker’s death. But a trust can be wound up in any year if it is no longer required.

What happens to my Testamentary Trust after 80 years? Why must it vest?

Does it really matter? All Australian trusts vest after 80 years. See here. But for trusts in Wills, the 80 years only starts on the date of your death. So your spouse and children are all dead by the time the 80-year period comes about. Probably your grandchildren have died of natural causes as well.

No one knows what is going to happen to Australia. We have no idea of the tax laws that will apply. The 80-year law of perpetuity will likely be abolished. That is why if you narrow estate planning and Wills to one word it is ‘flexibility’. The 3-Generation Testamentary Trust is the most flexible structure you can put in a Will.

But to answer your question: under the current Australian CGT laws when a trust vests CGT is payable on those assets as if they were ‘disposed’ of. However, during the 80 years, the beneficiaries can sell and manipulate your estate assets as they see fit. They have 80 years to plot and plan. However, generally with a 3-Generation Testamentary Trust, your beneficiaries have the highest chance of reducing CGT and stamp duty to zero. And obviously, cash can be distributed from a 3-Generation Testamentary Trust for free at any time.

South Australia does not restrict its trusts to 80 years. They can go on forever. 

Rich enough for a 3-Generation Trust Will?

Of all the people who paid Capital Gains Tax,  80%  earned an income of less than $80,000.

Capital Gains Tax is a tax on the middle class.

The only people who don’t need a Testamentary Trust in their Wills are people who feel guilty for not paying enough tax during their life! Even if your only major asset is your family home, you can gain tax advantages from a Testamentary Trust.

Estate Planning is not for the rich. It is for people who don’t like paying taxes.

Pay Capital Gains Tax on my family home?

Paul Keating told me in 1985 that my home was exempt from Capital Gains Tax
How times have changed. A lot has happened since then. Within one generation, every asset in Australia falls within the Capital Gains Tax regime. Even the family home is not automatically exempt.

You can own property with another person either as Joint Tenants or Tenants in Common. When a joint tenant dies, his or her interest goes automatically to the survivor(s) – not via the Will.

In the past, it was popular for married couples to buy assets, such as family and investment homes, together as Joint Tenants. Capital Gains Tax legislation does not recognise Joint Tenancy in its calculation of Capital Gains Tax. Generally, holding assets as Joint Tenants is now considered dangerous.

By owning property as Tenants in Common and including a 3-Generation Testamentary Trust in your Will, you can provide your Accountant with the flexibility to significantly reduce any Capital Gains Tax that may be payable on your home.

Tax Man takes my Superannuation when I die?

Adult children can pay 32% in tax on their super.

Instruct your Tax Lawyer to include a Superannuation Testamentary Trust in your Will to wash out the 32% of tax.

Unless you decide otherwise,  Super goes to who your Trustee decides.

Can I do Estate Planning after I die?

If there are no Testamentary Trusts in your Will then your family may be able to set up a Post Testamentary Trust after you die. A Post Testamentary Trust has limits that do not exist for a Testamentary Trust. It is a poor second-best option.

Also, there is no value in a Post Testamentary Trust unless you die while your children are still under 18 years of age. So if your children are all over 18 when you die, a Post Testamentary Trust has no value.

How come my Partner loses the Aged Pension when I die?

Your gift may partially or fully reduce Centrelink and other pensions.

“I’ll just renounce the gift because I want to keep my pension for the medicines subsidy. Even better, I’ll just keep the gift & give it to my children”.

Even abandoning a gift under a Will presents complications for pensioners. It leaves that pensioner open to the so-called “deprivation” rules of Centrelink. Centrelink considers the gift an “asset”.

‘Gifts’ reduce pensions?

Why is Centrelink so tough on Pensioners? The philosophy is that those who can provide for themselves should. Give careful thought to how to leave assets to pensioners. Your well-intentioned wishes may result in an Aged Pensioner losing all or part of their entitlements. Estate Planning can help.

Public Trustee as executor?

You appoint an Executor in your Will. Executors handle your affairs after you die. Most people appoint their spouse and then their children when both parents are dead. You can appoint alternative executors in case the executors are never born or are under 18 years of age or dead. Be careful appointing Professional Trustees and Lawyers as Executors. They charge to administer your Estate.

My children don’t get on. Should  I appoint all of them?

If your children don’t get on together then you should appoint them all as executors. Contrary to popular rumour, the job of an executor is one of servant – not master. The executor can’t boss the beneficiaries. The beneficiaries, however, can boss around the executors. Therefore appoint all the children if they fight.

If the children all love each other and get on well, then appoint them all as your executors.

What does an Executor do?

Your Executor arranges the funeral, applies for Probate, pays debts and distributes your assets according to your Will. These are not normally difficult jobs and the Executor can always get professional help.

Divorcing children

Many trusts are put in your Will:

1. 3-Generation Testamentary Trust to reduce the defacto death duties

2. Bankruptcy Trust if a beneficiary goes bankrupt

3. Maintenance Trust if a child is too young or can’t look after money

4. Protective Trust and Special Disability Trust if your child is not able to look after money or is vulnerable

5. Superannuation Testamentary Trust to reduce the 17% or 32% tax on your Superannuation when it goes to adult children

6. Divorce Protection Trust

The Divorce Protection Trust delays or stops any capital or income going to the beneficiary who is suffering divorce or separation proceedings. It is designed to reduce the opportunity for the Family Court to get its hands on your money.

The Divorce Protection Trust sits dormant in the Will until needed. The Divorce Protection Trust activates for the benefit of the married person and that person’s children and grandchildren. It removes that person’s power to control the trust while they are suffering the separation.

The Divorce Protection Trust benefits the current and succeeding generations. This helps protect the assets from the Family Court.

Apart from the Will, Enduring POA and Medical POA what else should I consider for my Estate Planning?

You may also consider:

• Contractual Wills Agreements – for 2nd marriages

Plus when you have a Family Trust:

• Family Trust Update with succession planning
• Deed of Debt Forgiveness to get rid of money the Family Trust owes the children

Plus when you have a Self-Managed Superannuation Fund:

• Update the SMSF Deed or Update the Binding Death Benefit Nomination

Family Law and the Family Maintenance Provision Act affect married and de facto couples alike. Your spouse (and sometimes your ex-spouse) is entitled to make a claim on your estate.

Even your parents, children and grandchildren can make a request to the court for some of your estate – irrespective of how little or how much you leave them in your Will. A small gift of say $1 000 left to a wayward son does not stop that son from challenging your Will. It is unwise to make such gifts as it gives the person more rights over your Will.

An Estate Planning strategy reduces the chances of these people being successful in their request to the court.

Stop government meddling?

Power of Attorneys and Medical Power of Attorneys

Sadly, your spouse gets Alzheimer’s disease at 61 years of age. Your children have left home. You decide to sell the large family home. You want to buy a smaller home closer to amenities that can help your spouse.

The family home is in both your names. Your spouse no longer has the legal capacity to sell the home. While there are many different types of Power of Attorney, you have none. Therefore, your only option is to apply to a government instrumentality for permission to sell the home.

During this Tribunal procedure, your children are asked to swear in court as to whether you are a “spendthrift”. Other people such as friends, other family members and even nosy neighbours may be contacted by the government to see whether they support your application. At the hearing, you are cross-examined as to whether you are a “good person” to look after the affairs of your partner.

Eventually, this government department tells you that you are allowed to sell your home. However, it can direct that you hold your spouse’s half of the proceeds in a separate bank account. If you need to buy toilet paper for your partner then you may need to provide a receipt.

Without all the proceeds from the sale of the home, you cannot afford to buy another property.

Overcome the government’s meddling with both a Power of Attorney and a Medical Power of Attorney. (Medical Treatment Decision Maker in Victoria.)

Are ‘mistakes’ in homemade Wills common? 

This is not an unusual case. There are a lot of problems that can arise from people creating Wills without legal support.

Sadly, a number of non-law firms are putting Wills online. It seems very alarming that they are offering legal documents without being a law firm themselves and having lawyers available for advice. Estate Planning is an extremely serious and important process and should be handled by experts.

The Law Society of New South Wales agrees with us. They write:

“Some people choose to make their own Will. We think that’s a mistake. Although writing your own may seem easy enough, the law around Wills can be complex.”

Also See:

Please read the article written by Professor Brett Davies titled Estate Planning: beware of failing to consider business structures.