Estate Planning is a complex area of law and we would be happy to discuss your situation and requirements.
There are many different types of Will but basically they are either:
- a “simple will” which operates after your death and passes your assets directly to your beneficiaries on a personal basis, or
- a “testamentary trust Will” which creates a trust on death and your estate assets are held within the trust. The terms of the trust fund (for example, the powers of the trustees) are drafted into your will.
Can problems arise under a simple will?
Passing your estate directly to your beneficiaries on a personal basis can sometimes upset your beneficiaries’ Centrelink or taxation arrangements or leave their inheritance open to attack by creditors (for example if they are declared bankrupt). One way to help counteract this is to prepare a “testamentary trust” will.
How does a testamentary trust work?
When your executors have completed the administration of your estate, your assets are not personally owned by your beneficiaries but transferred into the the testamentary trust. Your assets are then controlled by an appointed trustee who acts according to the the terms of the testamentary trust. As the testamentary trust is discretionary in nature, the trustee (usually your spouse) can distribute income or capital of the trust to any or all of the beneficiaries noted in the terms of the trust (generally your spouse and children). The position of trustee is also controlled by the terms of the trust and is normally passed to your children on the death of your spouse.
What is the difference between a ‘family’ trust and a testamentary trust?
These trusts are quite similar although a family trust is established and operates during your lifetime. Testamentary trusts are treated differently to family trusts for tax purposes and we recommend discussing your proposed estate plan with your accountant or financial advisor.
Who can be trustee of a testamentary trust?
Anyone, but generally your best choice is your spouse or children. Your trustee should be someone you know and trust as they have control of the assets of the trust. This does not mean that they can use the assets of the trust for their own benefit as they have a duty as trustee to maintain the trust assets and income for the benefit of the beneficiaries.
What are the advantages of a testamentary trust?
Two main advantages of a testamentary trust are flexibility of distribution of income and capital and the protection of your assets for your beneficiaries under the terms of the trust.
Income generated by the testamentary trust can be distributed to a variety of beneficiaries and this may offer significant taxation advantages to them year after year.
A testamentary trust may also offer protection for your family’s assets against family provision claims or creditors taking action against your beneficiaries.
Here is a list of things for you to consider when reviewing your estate planning needs.
- Who will act as your executor and trustee (usually your spouse) and possibly act as a backup executor (for example your eldest child) if your initial executor is unable or unwilling to act. It is your executor’s task to ensure that all of your outstanding debts are paid and the balance of your estate distributed to your beneficiaries in accordance with your will
- Who will act as guardian of your young children (under 18 years old), and a backup guardian if your initial guardian is unable or unwilling to act
- Any specific gifts, for example, jewellery to a favourite niece or a legacy to your favourite charity
- How you would like your estate to be distributed to your beneficiaries, for example, “equal shares” or a percentage of the total
- Make a list of your assets including real estate, leases, shares, term deposits, bank accounts, joint bank accounts, superannuation account details, life insurance policies and any binding death benefit nominations on those accounts and policies
- Make a list of your current liabilities such as mortgage accounts, personal loans, credit card accounts, car loans, hire purchase agreements, personal guarantees
- Do you have sufficient life insurance to cover your estate liabilities
- Are you expecting a possible inheritance from your parents or other family members
- Is your spouse or any of your children in business, especially in a high risk profession such as a doctor. Are they disabled, in need of special care or prone to other lifestyle factors such as gambling
- If you are in business do you have a business succession plan, shareholders’ agreement or partnership agreement
- Do you have a family trust ? Who gets control of your family trust on your passing
- Do you have a former spouse? Do you have a binding financial agreement or Family Court Orders
- Keep copies of all your estate planning documents and recent tax returns in a safe place where your executor may find them should the need arise
If you have a spouse, they will generally be your first choice as executor of your estate. If you do not have a spouse, we suggest that you choose someone trustworthy, of your age or younger (perhaps your eldest child) who is easily contactable.
You also have the option of including an alternate executor should your primary executor (or spouse) be unable to fulfil their role.
Your executor’s duty is to maintain and distribute your estate in accordance with your Will. This will normally require:
- payment of your funeral expenses
- an application to the Court for Probate (formal approval of your Will)
- maintaining real estate that you own for example, upkeep of the gardens, repairs and maintaining insurance
- transferring all property, shares and other assets to the beneficiaries named in your Will
- closing all accounts, super funds and pensions and distributing proceeds to the beneficiaries named in your Will
Your Estate will consist of your real estate, personal property, term deposits, shares and other assets held solely in your name, Where assets are held “jointly” such as real estate or bank accounts, these will automatically pass to the remaining joint owner on notification of your death.
Our basic estate planning package specifies:
- your spouse as your executor and all of your Estate is given to your spouse on your passing.
- if your spouse has predeceased you, your executor is your eldest child and your estate is distributed equally among your children.
A power of attorney is a legal document which appoints a person (your attorney) to make decisions about your legal affairs, for example, your money, bank accounts, real estate, shares and other assets.
As with the executor of your Will, generally your first choice for your attorney is your spouse. If you do not have a spouse, choose someone you trust to look after your legal and financial affairs if you are incapacitated.
What is the difference between a ‘general’ power of attorney and an ‘enduring’ power of attorney?
A general power of attorney automatically ceases to have effect if you lose the mental capacity to make decisions. This type of appointment is useful for short term appointments, for example, while you are overseas.
An enduring power of attorney continues to operate after you have lost your mental capacity to make decisions.
What issues can the attorney make decisions about?
Your attorney can make decisions about your property or financial affairs. This means that they can operate your bank accounts, pay your bills, and sell or buy property or shares on your behalf. In making these decisions, your attorney must always act in your best interests and cannot use your assets for their own benefit.
*Decisions about medical or lifestyle choices are made by your guardian. You may appoint an enduring guardian by using a separate legal document (an Appointment of Enduring Guardian).
Can I make an enduring power of attorney?
Yes as long as you are capable of understanding the nature and effect of the power of attorney. Where someone with a cognitive disability wishes to appoint an attorney then an assessment by an appropriate health professional of the person’s understanding would need to be made.
Why make an enduring power of attorney?
An enduring power of attorney will continue to have effect even if you lose mental capacity which may occur suddenly (for example, by stroke or accident). If you do not have an enduring power of attorney and you lose mental capacity, there may be no one with legal authority to manage your financial affairs. They will need to apply to the Guardianship Tribunal to be appointed as your attorney (if approved).
Who should I appoint as my attorney?
You should choose a person who you know will act responsibly and is trustworthy such as a family member or close friend.
Who can witness an enduring power of attorney?
Your witness must complete a certificate at the end of the enduring power of attorney. For the appointment to be enduring, this certificate must be completed by a specific type of witness for example, an Australian solicitor or barrister.
How many attorneys can I appoint?
You can appoint more than one attorney and you can appoint your attorneys to act jointly or separately.
When does an enduring power of attorney start?
Your enduring power of attorney can commence immediately or at some future date or only when your attorney thinks you need help managing your financial affairs.
What powers can I give an attorney under an enduring power of attorney?
You can limit the power you give to your attorney in the enduring power of attorney. For example, the appointment is for specific things, such as operating a particular bank account or selling a property within NSW. If you do not limit the power given to your attorney then your attorney is able to make any decision or do anything about your finances or property which you could do yourself.
What are the duties and responsibilities of an attorney?
The attorney has a responsibility to act only in your best interests. Your attorney must not do anything in their own interest which will conflict with your interests and must act within the limits of their powers.
Do I need to register the enduring power of attorney?
Generally only when the attorney wants to deal with real estate. In this case the enduring power of attorney must be registered (a fee applies) with Land and Property Information NSW.
When does an enduring power of attorney end?
An enduring power of attorney ends on your death, when you revoke it (while you have mental capacity to do so), if your attorney dies or can no longer act as your attorney or when you have more than one attorney appointed jointly and one of them dies or can no longer act as your attorney and you have specified that the power ends in these circumstances.
How do I revoke my enduring power of attorney?
You can revoke your enduring power of attorney by notifying your attorney that you have revoked the appointment either by telling them or by notifying them in writing. This can be done at any time as long as you have mental capacity to understand what you are doing.
An appointment of enduring guardian is a legal document which appoints a person (your guardian) to make decisions about your health and medical affairs.
As with the executor of your Will, generally your first choice for your guardian is your spouse. If you do not have a spouse, choose someone you trust to look after your health affairs if you are incapacitated.
What is an enduring guardian?
An enduring guardian is someone you appoint to make personal or lifestyle decisions on your behalf if you lose your capacity to do so.
Who can appoint an enduring guardian?
If you are over the age of 18 years and you have the capacity to understand what you are doing, you can appoint one or more people to be your enduring guardian or guardians.
Who can be an enduring guardian?
The person you appoint as your enduring guardian must be at least 18 years old and someone trustworthy who will act in your best interests.
What sort of decisions can an enduring guardian make?
You can give your enduring guardian as many or as few powers as you like.
You may also give the enduring guardian directions about how to exercise their powers and decisions they make on your behalf.
What principles guide an enduring guardian?
The Guardianship Act controls the actions of your guardian. Basically he or she must act in your best interests and within the law.
How many guardians can I appoint?
You can appoint one or more persons as an enduring guardian. If you appoint more than one enduring guardian, you can direct them to act jointly or separately or both.
When acting jointly the enduring guardians must agree on all decisions. When acting separately each enduring guardian can make decisions separately from the others, or when acting jointly and separately the enduring guardians can act together or separately.
You can also appoint an alternative enduring guardian who can act only if the original enduring guardian(s) dies, resigns or becomes incapacitated.
The appointment of your enduring guardian takes effect only if you become unable to make your own personal or lifestyle decisions. Your enduring guardian may wish to seek the opinion of a medical practitioner about your capacity to make decisions before acting on your behalf.
If there is any doubt about your capacity to make decisions, a medical practitioner may have to assess your capacity.
Can I change my mind?
While you can make decisions for yourself, you can revoke the appointment by completing a Revocation of Appointment of Enduring Guardian form and by advising the enduring guardian in writing that their appointment has been revoked.
If you choose, you can appoint a new person as your enduring guardian, or change the functions or directions given to your enduring guardian while you have capacity by completing another form of appointment.
What happens if I get married?
A previous appointment is automatically cancelled. You can complete a new appointment if you wish to reappoint the enduring guardian.
What if someone is worried about what my enduring guardian is doing?
That person can apply to the Guardianship Tribunal for a review of the appointment. The Tribunal can amend or revoke the appointment.
What happens if my enduring guardian cannot continue?
If the person you have appointed dies, resigns or becomes incapacitated, the Guardianship Tribunal can, on application, order another person to be appointed as enduring guardian on your behalf.
When does enduring guardianship end?
The guardianship ends when you die, or if you revoke the appointment. A joint enduring guardianship will also end if one of the guardians dies, resigns or becomes incapacitated unless otherwise noted in the appointment.
The Guardianship Tribunal may also act as noted above to revoke the appointment if necessary.
What is Probate?
The person you have nominated in your will as your executor (with our assistance) will make an application to the Court for “probate”. This is the official Court approval of your will. Probate is normally required before institutions, such as banks and building societies, will release funds held in your accounts. It is also required before property that you own can be transferred into your beneficiaries’ ownership.
How is your estate distributed?
Once probate is granted, your executor makes arrangements to pay your debts and then distribute your estate in accordance with your will. This may mean transferring the ownership of your home to your beneficiaries or selling it and dividing the proceeds, as well as other funds, such as bank accounts, insurance payouts, superannuation and shares between your beneficiaries as specified in your will.