- Do you know what happens:
- to your assets if you pass away without a valid Will?
- if your executor passes away before you?
- Do you expect your Will to be challenged?
- Do you want to:
- protect vulnerable beneficiaries
- establish a trust to ensure that a disabled beneficiary receives ongoing care?
- ensure that your superannuation death benefits go to your intended beneficiary ?
What is a Will?
A Will is a document made by a person (called a Testator) with capacity to make a Will (called testamentary capacity) naming who you wish to leave something to and what you want to leave them after your passing.
Your Will also appoints your Executor, whose job is to follow the wishes set out in your Will and look after your estate after your passing.
Who may make a Will?
Usually a Testator must have testamentary capacity and be at least 18 years of age (except with the Supreme Court’s approval) to make a Will .
Why make a Will?
- gives you control over who receives your assets after your passing;
- allows you to state who you want to be the guardian/s for your children under 18 years of age (called minors)
- is a lot faster, simpler and cheaper and more certain than the process followed if there is no valid Will (called an intestate estate);
- means that you can make allowance for contingencies.
What happens if I do not have a Will?
In that event the Executor’s role is filled by the beneficiary/s with the largest claim (called the Administrator).
You lose control over who inherits your assets after your passing. The Succession Act determines your beneficiaries using an inflexible list of who receives what share of your estate.
The outcome depends on your personal circumstances on your passing. Distant relatives can inherit, and if you have no relative or their children in any of the categories, your estate can become part of State Revenue.
Finalising an intestate estate is generally a lot slower, complex and more expensive than when there is a Will.
Who is involved in making a Will?
The Executor’s ensures that the Testator’s directions in the Will are implemented.
Who can be an Executor?
The Executor may be:
- a family member;
- a friend;
- a professional (such as a solicitor or accountant); or
- a trustee company.
The Executor may also be (but does not have to be) a beneficiary.
Who should be appointed as Executor?
Ideally the Executor will be:
- resistant to unreasonable demands;
- willing to keep beneficiaries informed;
- able to delegate;
- able to work with others; and
- willing to accept professional advice.
Is an Executor entitled to be paid?
Yes. Professionals and trustee companies charge for their work if they are appointed the Executor. If the Will does not provide for the Executor to be paid they may:
- apply to the Supreme Court for compensation for their “pains and trouble” in their role as the Executor; or
- reach agreement with the beneficiaries as to their payment.
You should consider paying the Executor, even if they are a friend or family member.
How many Executors should I appoint?
Joint Executors may be appointed but usually one is appointed and an alternative Executor is specified (in case the person appointed is unable or unwilling to act).
These are the people (or entities, such as charities) who receive your assets.
You should also choose contingent beneficiaries who benefit if the gift to your preferred beneficiaries fails.
The Succession Act specifies categories of people who can claim a part of your estate when:
- you leave them nothing in a Will; or
- if they believe that their share in the Will is insufficient; or
- they receive nothing in an intestate estate.
Categories of people with a connection to the deceased who may claim include:
- your former spouse or spouse;
- your de facto partner;
- your child;
- someone for whom you had parental responsibility;
- a person who was dependent on you and a household member;
- a grandchild who was dependent on you; and
- a person who lived in a close personal relationship with you and immediately before your passing gave you domestic support and personal care.
If beneficiaries are young or disabled or need protection, the Trustee holds their gift in trust and ‘manages’ it for them.
The Trustee’s role usually commences when the Executor’s role has been finalised.
The same person is often (but need not be) the Executor and the Trustee.
Who can be appointed as a Trustee?
The Trustee must be at least 18 years of age and understand their responsibilities.
A Trustee must be able to make:
- prudent investment decisions regarding the beneficiary’s gift; and
- appropriate payments (e.g. for the maintenance or education of a beneficiary who is a minor).
If you have children who are minors you may wish to appoint a close family member or friend to be the children’s guardian if you pass away when they are minors. This only expresses your wish and is not binding on that person.
What is a testamentary plan?
A testamentary plan is a Testator’s plan for minor children. It may contain policies the Testator wants the guardian to adopt with regards to the children’s health, education, religious instruction, residence, or general activities.
What assets can and can’t be disposed of in your Will?
You may give away things that you own at the date of your passing.
Your assets can include your home, property, shares, savings, superannuation entitlements, life insurance, and personal possessions such as jewellery and collections.
Some assets may be valuable and be controlled by you but you don’t own them before your passing because an entitlement to them arises only after your passing . You can not give these ‘assets’ away in a Will.
- property owned as a joint tenant;
- most superannuation and life insurance proceeds;
- assets held in discretionary trusts in which you are the Trustee; and
- life interests, pensions and annuities.
If on your passing you own your residence with your partner as:
- a joint tenant, your residence will be transferred to your partner no matter what your Will says. You can overcome this only by transferring ownership of your residence from joint tenancy to tenancy in common.
- a tenant in common, your share will be transferred as you direct in your Will.
The trustee of your superannuation fund has to act according to that fund’s trust deed and the superannuation laws.
If your fund’s trust deed will not accept a “Binding Nomination” then the fund’s trustee decides who receives your superannuation death benefit on your passing.
Superannuation law generally requires the trustee to pay death benefits to beneficiaries they consider need it most.
Conflicts may arise between:
- potential beneficiaries such as children from an earlier and from a later relationship/marriage;
- one family which controls the assets and does not want children from another family to access any assets.
What is required for a Will to be valid?
The standard requirements are that:
- the Will is written;
- it is signed by or on behalf of the Testator;
- the Testator knows and approves its contents;
- the Testator has capacity to make a Will; and
- the signing by the Testator is witnessed by two competent persons who each sign the Will.
Nonetheless, the Court can declare a document to be a Will even if all these requirements are not strictly met.
What arrangements should be made about storage and review of the Will?
- The Will should be stored in a safe place. On request your solicitor will place your Will in a safe custody packet, where it will remain indefinitely free of charge.
- You should tell your Executor of the existence of your Will and where it is stored.
- If you have a previous Will you should retrieve and destroy it or store it with your new Will.
When should the Will be reviewed?
You should review the Will (and the comprehensive estate plan) if any of the following have occurred since you made your Will:
- if you, or any one named in the Will, have changed your/their name;
- if you have married, partnered, divorced, separated or moved house;
- if your financial position has changed significantly;
- if you have sold/disposed of/given away assets gifted in the Will;
- if more than five years have passed;
- if have had children;
- if an Executor has died or lost capacity, or no longer lives in Australia;
- if the Executor has become unsuitable, or someone else has become more suitable to be the Executor;
- if you want to add or remove beneficiaries;
- if a beneficiary has died, changed their residence, become bankrupt or become vulnerable;
- if a beneficiary receives a means tested pension which needs to be preserved;
- if a beneficiary has become a high income earner, had children, developed a need for care or developed a need for protection of inherited assets;
- if a beneficiary has ceased to be dependent;
- if there is an increased or reduced risk of a challenge to your Will;
- if the guardianship, education or maintenance needs of a child have changed;
- if laws affecting with Wills and inheritance (directly or indirectly) have changed.
How is a Will revoked or changed?
A later Will generally revokes an earlier Will. Intentionally destroying or writing the word “revoked” on it a Will revokes it.
A Will made before you are married is revoked when you get married (except if your Will states that it was made in contemplation of getting married).
If you and your spouse separate your Will remains valid until your divorce is finalised. If you separate and do not want your spouse to benefit from your Will, you should immediately make a new Will.
Once the divorce is finalised then:
- if you appointed your former spouse as your Executor, that appointment and gifts to your former spouse will be revoked. The other gifts in your Will will remain valid.
How is a Will changed?
A significant change to a Will is usually made by making a new Will.
A less significant change to a Will may be made by a Codicil. A Codicil amends a part of a Will but leaves the balance of the Will binding and effective.
How do I leave something to a charity or my church?
It is important to correctly name the charity you wish to benefit from your Will. Your solicitor will normally make enquiries of your chosen charity/s or church/s regarding their preferred wording to ensure that a gift goes to the proper place and for the purposes you wish.
Can my Will be Challenged?
Your will may be challenged if you do not leave assets to categories of people the law considers would normally be amongst your beneficiaries.
If your Will excludes a family member as a beneficiary, if they lack need or have done something disentitling them from inheriting, it reduces their likelihood of successfully challenging your Will.
The Next Step
Preparing a Will or reviewing your existing Will may involve:
- considering whether to make changes to ownership of assets;
- reviewing superannuation nominations and life insurance policy ownership;
- considering the effect of an inheritance on a beneficiary’s Centrelink entitlements;
- considering potential capital gains tax liabilities;
- considering the financial and personal position of proposed beneficiaries.
How we can help
Advice may include:-
- the make up of executors;
- whether to appoint
- an Executor and alternate Executor;
- multiple Executors;
- a professional Executor
- if an alternate Executor is not a beneficiary, considering whether to pay them or leave them a gift;
- if multiple Executors, considering whether the majority prevails in the event of a disagreement;
- avoiding an unintended partial intestacy by:
- appointing alternate beneficiaries;
- dealing with your residuary estate;
- categories of people entitled to challenge your Will;
- children with difficult relationships;
- dealing with possible claims by potential beneficiaries;
- when you should change your will;
- nominating a beneficiary of your superannuation entitlements;
- Trustees’ responsibilities;
- guardianship of children;
- procedure for a grant of probate;
- the process of estate administration;
- the possible need for financial planning advice;
- benefits of testamentary trusts.
Testamentary Trust Wills
What is a Testamentary Trust Will?
A Testamentary Trust is created in your Will to benefit your beneficiaries. It comes into existence on your passing. You can establish more than one testamentary trust .
Who controls my assets in a Testamentary Trust?
The Trustee appointed in your Will controls the Trust assets.
What decisions can’t a Trustee of a Testamentary Trust make?
The powers you give the Trustee are up to you.
You choose the degree of the Trustee’s discretion including when they distribute to beneficiaries and who receives the trust capital and/or income.
What happens in practice?
- On your passing the Executor applies to the Supreme Court for a Grant of Probate.
- Once Probate is granted your Executor organises payment of funeral expenses and debts.
- Assets left to beneficiaries direct are then transferred to them.
- Assets left on trust are transferred to the Trustee of the testamentary trust to be administered in accordance with the trusts in your Will.
- The Executor’s role is then over.
Do Testamentary Trusts allow me to transfer assets to my beneficiaries to minimise Income and Capital Gains Tax?
Testamentary trusts in Wills can split income between family members. The Income Tax Assessment Act allows the income beneficiary of a trust to be treated like a normal taxpayer. A child beneficiary of a testamentary trust will have the same tax free threshold as an adult.
Can I decide in my testamentary trust Will who receives my superannuation entitlements on my death?
Superannuation is usually your second largest asset after the family home. It can not be dealt with in your will.
If your superannuation fund trustee allows you to make a Binding Death Benefit Nomination, you can nominate who is to receive your superannuation. This gives you some control over who receives your superannuation benefits on your passing but the law limits who can be nominated.
Binding Death Benefit Nominations (BDBNs) are binding on your superannuation fund trustee. Many BDBNs lapse and must be renewed, generally every three years. Lapsed BDBNs are not binding on the Trustee.
If your superannuation fund Trustee does not accept BDBNs, the Trustee of the superannuation fund determines who receives your superannuation benefits.
If you have a self managed superannuation fund (SMSF), you can make nominations which need not be renewed and are binding on your fund’s Trustee on your passing.
Can I do anything to minimise tax payable on my superannuation entitlements on my passing?
If at the time of your passing you have:
- superannuation assets; and
then your estate may have to pay superannuation death benefits taxes.
- Your partner;
- your minor children; and
- others in certain circumstances.
Children not living at home and not financially dependent on you are not your dependents.
What types of trusts can be created in a testamentary trust will?
Types of trusts that can be created are largely limited by your imagination. Issues testamentary trusts can seek to address include:-
- life interests;
- rights of occupation;
- superannuation death benefits;
- protecting capital;
- beneficiary controlled;
- staggered time release;
- all needs protective;
- inactive; and
- non-beneficiary controlled.
Can I protect my beneficiaries’ inheritance if their marriage fails?
Many people are concerned that whatever they leave their children will eventually go to their son-in-law or daughter-in-law if their child’s marriage or de facto relationship fails.
If your children receive a direct inheritance from you then that will form part of their assets. If they separate it will be available for distribution by the Family Court or the Federal Circuit Court.
If your children receive their inheritance in a testamentary trust, that may not form part of the assets of their marriage or de facto relationship. If they separate it will not be available for distribution by the Family Court or Federal Circuit Court.
Who controls your family company, family trust or self managed superannuation fund (SMSF) on your passing?
Family companies, family trusts and SMSFs with a corporate trustee provide asset protection and tax savings. However, on your passing, these entities do not die.
- Who controls these entities on your passing?
- Does control of these assets pass to the people you want?
Your will or a separate document must ensure that the the people you wish to benefit from your estate control the assets held in these entities.