Wills and succession planning

Simple Wills

Like most legal firms, we prepare many simple Wills for individuals and couples. In many cases this process is straightforward. However we will chat to clients about their family and circumstances generally to ensure that there is no unusual feature which requires particular treatment. For example where a client has a family trust, we must check the document and ensure that control of it passes in the way a client intends.

A trap for clients and solicitors alike is the fact that there are a range of assets which do not in fact form part of the estate and which do not pass pursuant to a Will.

 These include:

  • assets held by the Will-maker and another person as joint proprietors – for example a jointly held home or bank account. These will pass to the survivor irrespective of the provision of any Will;
  • assets held in a discretionary trust. These are owned by the Trust, not the Will-maker;
  • assets held in superannuation. See below as regards the discretion of the fund trustee and binding death benefit nominations; and
  • Life Insurance policies with a designated beneficiary.

Second Relationships

A significant percentage of Wills we now prepare are for couples in a second relationship. Very often each will have a child or children from a prior relationship. There may, in addition, be a child or children to the couple themselves. Generally complicating the position will be the fact that both will have superannuation. If superannuation death benefits are left to a spouse or minors, they will normally be non-taxable, but they will be heavily taxed if left to adult children. These circumstances demand particular attention. There is no “one size fits all” – the Wills must be tailored carefully to the couple’s circumstances.

Legal tools which can be used include:

  • Mutual wills – where the couple will leave everything to each other, while imposing an obligation on the survivor ultimately to leave their estate in designated proportions to the children of both. Such Wills have some advantages, but come with drawbacks;
  • Holding certain assets, such as a home, as tenants in common and leaving a life interest to each other;
  • Where the couple has sufficient assets, each leaves certain assets to the other, and others to their own children;
  • Taking the view that each should leave their whole estate to their own children, and nothing to their spouse/partner. This would only be feasible where each already has substantial assets – enough to sustain them after the other dies; or
  • A combination of the above.

Complicating things further is the risk that, if one does not provide adequately for the other, the other can challenge the Will under the Testator’s Family Maintenance provisions. See below.

Estate Planning and More Complex Wills

The affairs of some clients require that a careful process be undertaken to ensure that assets are properly dealt with following their death. This might be due to the nature of family relationships or circumstances, or to the type of asset holding or business structures which have been established, or both.

Testamentary Trust Wills

Later in this information booklet we talk about discretionary trusts, which is a form of trust in which no beneficiary has any fixed entitlement; the trustee in its absolute discretion may from time to time decide who is to receive what, if any, capital or income. This provides substantial taxation and asset protection benefits.

With a Testamentary Trust Will, the major beneficiaries do not receive their bequests absolutely. They receive control of a discretionary trust, of which they and their immediate family are potential beneficiaries.

Due to a concession in the Tax Act, a discretionary trust within a Will enjoys a substantial advantage over a discretionary trust created during a person’s lifetime. Where a minor receives income from a Testamentary Trust, they pay tax on that income at adult rates. This means that income can be allocated to children – for example to pay private school fees – with them paying little or no tax.

There is a further advantage afforded by a Testamentary Trust Will. Where a parent Will-maker is concerned that the marriage of a child beneficiary is in trouble, the Testamentary Trust can be structured in such a way as to make it extremely difficult for the child’s spouse to attack assets in the trust in Family Law property proceedings.

Superannuation and Binding Death Benefit Nominations

At law a superannuation fund trustee has a discretion with respect to superannuation death benefits payable on death. Those benefits may pass to a “dependent” (as defined by superannuation law) or to the legal personal representative (executor) of the deceased. Typically superannuation will be a very significant, if not the largest asset of a client. 

Usually it is very undesirable to leave this discretion open. It can be eliminated by implementing a binding death benefit nomination. We will generally check to ensure that a client has put such a nomination in place. If they haven’t, we will arrange one.

Where superannuation benefits do not pass to a ‘Tax Dependant’ (for example a spouse or minor child) substantial tax is payable.

Testator’s Family Maintenance Claims

Where a person believes that a deceased has failed in their moral obligation to provide financially for them, provided they come within the category of claimants, they can lodge such a claim against the estate. These are often called “Part IV claims”. If it becomes apparent from our discussions that there is a risk of such a claim – for example if a child is to be left out of the Will – we will discuss with the client their reasons and explore a strategy for minimising, if not eliminating, the danger of the claim.
Those strategies can include:
  • transferring assets prior to death – subject to capital gains tax and stamp duty considerations;
  • transferring assets to yourself and another beneficiary as joint proprietors;
  • the creation of a family trust; or
  • the preparation of an explanation as to your reasons for leaving the person out of the Will. This might be included in the Will, or in a separate memorandum.