Wills and estate planning

Estate planning is ensuring that your affairs are arranged, both during your life time and after your death, in such a way as to minimise the burden of tax, maximise asset protection and ensure that ultimately the right people benefit from your wealth. The goal is to maximise the results of your hard work which are available to you and to the people you want to take care of.

Estate plans need to be constantly reviewed.

Your Will

Do you have a valid Will? Bear in mind that a Will you made in the past might no longer be valid, for example if you have been married or divorced in the meantime, or might be valid but inappropriate in view of your changed circumstances.

Following are some reasons to make a Will – or a fresh Will:

  • You can decide who benefits

If you die intestate, that is without leaving a Will, your estate (which may in certain circumstances include the proceeds of any life insurance and superannuation death benefits) is divided according to the law and you will have no say in how your estate is distributed. The operation of the law may be totally different to what you would have chosen. For example:

  • If you die without a will your de facto partner may not automatically be entitled to your estate. He or she might stand to lose the assets and treasured personal belongings that you want this person to have.
  • If you die without a will you cannot make gifts to anyone other than family, and some family you might have wanted to exclude will be able to benefit from your estate.
  • If you die without a will you may be unable to leave your whole estate to your spouse, even if they are the other parent of your children.
  • You can choose your executor

When you make a Will, you appoint an executor who is responsible for looking after your estate and distributing your assets according to the instructions contained in your Will. If you don’t make a Will you will have no say in who administers your estate, meaning important decisions may be made about your assets by someone you may not have chosen as trustworthy.

  • You can secure your children's future

If your children are under the age of 18 years, you may choose to nominate guardians for them in your Will and to make arrangements for their maintenance and education. You may protect children and vulnerable beneficiaries financially through testamentary trusts controlled by someone you have chosen as trustworthy.

  • Marriage and divorce

Unless your Will specifically contemplates your marriage or divorce, marriage and divorce automatically cancel all previous Wills. So if you have made a Will before you married or divorced and still want to continue to provide for those beneficiaries or make arrangements to cater for the new circumstances, you will usually need to make a new Will.

  • Early and less expensive distribution of estate

A professionally-drawn and properly executed Will greatly assists the cost-efficient administration of your estate and the early distribution of your assets to the beneficiaries named in your Will. There is considerable extra expense associated with obtaining Letters of Administration rather than Probate, determining the relevant family entitlements and dealing with family disputes.

  • Flexibility, tax minimisation and asset protection

A simple Will enables you to avoid all of the problems listed above. But a more sophisticated Will specific to your circumstances and incorporating optional default beneficiary-controlled testamentary trusts may also enable you to provide a real benefit to your beneficiaries by allowing them flexibility to distribute income on their inheritance efficiently for income tax purposes, and in some cases providing them with a degree of asset protection against creditors (including in bankruptcy proceedings) and spouses in family law disputes. Recent developments in family law have given the courts wider powers to make orders against non-parties to the proceedings – such as trustees – so the protection in the case of disputes with spouses may be limited. However, protection against other creditors by this type of arrangement is still very strong, provided care is taken in drafting the Will.

  • Superannuation

Although superannuation does not automatically form part of your estate, it can, in some circumstances, be paid to your estate and it is important that your estate is ready to deal with any superannuation moneys paid to it. A separate issue which your Will can address is a situation where you have left your assets to your children equally but for one reason or another your super fund has decided to pay your super to your children unevenly. A professionally drawn Will can ensure the estate is distributed in such a way as to ‘even up’ any inequity caused by the decision of a superannuation fund or any other non-estate payment (including gifts during your lifetime, life insurance payments, wages foregone etc). Or you may decide to leave your super to a beneficiary who under the super rules will pay less tax, and you may wish to then use your estate to even up the inheritances.

  • Family Trusts

Assets held in family trusts are not owned by you personally and therefore do not form part of your estate and therefore they cannot be dealt with by your Will. However, your Will can allow for either transfer of control of the family trust or termination of the trust upon your death. Also, a loan owed to you by a family trust is treated as an asset of your estate so if, upon your death, you don’t want to have your executor chasing up this debt, your Will needs to be drafted to instruct the executor specifically in this regard.

  • Contractual Agreements

Where you have entered into an agreement during your lifetime which is intended to operate after your death (for example, a buy/sell agreement in relation to your business – see below for more information) then it is appropriate that your Will alert the executor to the existence of any such agreement and direct them to uphold it.

Superannuation death benefits

When you die, the balance of your superannuation (including the proceeds of any life insurance owned by your super fund in respect of you) is paid to another person or people as a superannuation death benefit. That person can be your estate, however, if one or more beneficiaries is a tax dependant under the super rules, there may be significant tax advantages associated with paying the death benefit directly to those beneficiaries, not via the estate. It is important to make sure that your affairs are arranged so as to ensure that your superannuation death benefit – which can be a significant amount of money and sometimes represents the bulk of your assets – is paid to the person or people you want it to be paid to with as little of it as possible coming out in tax.

Once it was always the ultimate decision of the trustee of the super fund as to where your death benefit was paid. Now for most funds it is possible to make a “binding death benefit nomination” which enables you to control exactly where your death benefit will be paid. However, your binding nomination is always subject to the super rules. Those rules limit the types of people to whom your super can be paid. If you want to give your super death benefit to someone other than an allowable dependant, you will need to get professional advice as to how to achieve this, along with assistance in drawing up the necessary documentation. This may include making a binding nomination to pay the super death benefit to your estate, and then making sure your Will is in order to deal with the funds (see above section on Wills).

Enduring powers of attorney

An enduring power of attorney allows someone you trust to make decisions on your behalf if you are incapacitated, for example in the case of an accident or some kind of illness. It is important to understand that an enduring power of attorney is only effective while you are alive, whereas a will only has effect after you die. Therefore, it is generally recommended that you have both in place.

Enduring powers of attorney are, however, not for everyone. They allow another person to take out loans in your name, sell your assets and basically do anything you could do with your assets, so an enormous degree of trust is required. If you are confident that the requisite level of trust exists, enduring powers of attorney can save your partner significant inconvenience in the event that you do become incapacitated, allowing him or her to deal with the assets (which they may need to do if you are not working) without having to apply to the State Administrative Tribunal for permission to administer your financial affairs.

You can also make an enduring power of attorney out in favour of your children or any other person or persons. Many people do this if they are diagnosed with a condition which will ultimately see them lose capacity to make decisions themselves.

Enduring powers of guardianship

An enduring power of guardianship allows you to appoint a trusted person who will have the power to make lifestyle, medical treatment and other important decisions on your behalf if you do not have the capacity to do so.

We can assist you with preparation of this document if required.

More information about Enduring Powers of Guardianship is available at the website of the Office of the Public Advocate (see link below).

Advance health directives

An Advance Health Directive is a legal document that enables you to make decisions now about the treatment you would want - or not want - to receive if you ever became sick or injured and were incapable of communicating your wishes. In such circumstances, your AHD would effectively become your voice.

We can assist you with preparation of an Advance Health Directive if required.

You can also find further information regarding Advance Health Directives on the website of the Office of the Public Advocate (see link below).

Guarding against relationship breakdown

Binding legal agreements about the financial arrangements should a marriage or de facto relationship break down can be entered into under Commonwealth and Western Australian Family Law legislation. Sometimes people know these agreements as ‘prenuptial agreements’ but the legal term is ‘binding financial agreements’.

You can make a binding financial agreement before, during or after a marriage or de facto relationship. These agreements can cover financial settlement (including, in the case of marriage, superannuation entitlements) after the end of the marriage or de facto relationship, financial support (maintenance) of one spouse by the other after the end of the marriage or de facto relationship and any incidental issues.

For a financial agreement to be legally binding, you must both have received independent legal and financial advice before signing.

Financial agreements are binding even if the agreement is not fair and equitable, although they can be set aside in some circumstances, including where there has been fraud or unconscionable conduct, or there has been a significant change in circumstances leading to hardship.

Financial agreements aren’t for everyone but sometimes – particularly in the case of second marriages or other situations where there is a great disparity in assets – they can be appropriate as an asset protection tool.

Business partnership buy/sell agreements

If you are in business with a partner it is important for the protection of your asset (your interest in the partnership) that there is an appropriate buy/sell agreement in place.

A buy/sell agreement (also known as a business succession agreement) sets out how and when a person’s share in a business is to be transferred to the remaining owners in the event that one of the business partners unexpectedly dies or is permanently disabled.

Without an agreement you may find yourself having to continue in partnership with the dependents of your deceased partner – people who you don’t know and didn’t choose to go into business with. If they know nothing about the type of work you do you could find yourself doing all the work and still paying them 50% of the profits, unable to afford to buy your new partner out or reach agreement with them on an appropriate price.

If it is you who dies, your family may find themselves in this stressful and confusing situation.

A funded buy/sell agreement looks at the issue of where the money will come from to buy out the share of the deceased owner, putting arrangements in place (via life insurance policies) to make sure partners can afford to buy out a deceased partner’s share.

Avoiding claims against your estate

The Inheritance (Family and Dependants Provision) Act allows people left out of your Will to claim against your estate (or, if a beneficiary, increase the amount that he or she will otherwise inherit from your estate). You may not anticipate some of the ways in which the family provision legislation could cause problems in respect of your estate after you die.

We all know that if we decide to exclude someone from our estate, this can lead to a challenge. But benefiting one person in particular can also result in a challenge by other beneficiaries whose shares have been reduced as a result.

For example, do you have a particular family member who has been your carer and who you plan to have inherit more on this basis? Your Will could be challenged by other potential beneficiaries, possibly resulting in your carer getting less and the estate bearing the bulk of the costs associated with the action, meaning less for all beneficiaries.

Do you have a son who has laboured on the family farm for many years on low wages, who you anticipate will benefit more heavily from your estate, and to whom you have promised the farm? If so you will need to take some action now because recent cases have indicated that there is no basis for the view that such a son has the legitimate right to inherit the farm over the needs of other claimants.

There are a number of options available to address this issue, which a solicitor can explore with you. They often include providing for your intended beneficiaries during your life time (there are often significant tax consequences associated with this) or using methods such as joint tenancy, trusts, superannuation death benefits directly in favour of a beneficiary and life insurance in favour of the beneficiary.

Family trusts and other trusts

The way in which you own assets is important for the minimisation of tax and the maximisation of asset protection. Ellery Brookman can provide trust documentation at a competitive price along with advice as to the most appropriate structure for asset ownership.

It is also important to have trust deeds reviewed regularly to ensure they comply with changes in the law and also with changes in your estate planning objectives.

Because trusts do not just come to an end if the trustee passes away, it is important to ensure both in the case of family trusts and also in respect of self-managed superannuation funds that the trust deed is satisfactory to ensure that future control and powers of appointment are properly exercised ie to make sure that if you pass away, control of the trust will be transferred appropriately to appropriate people.