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 including your accountant or financial advisor when considering your estate plan.
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.
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.
Standalone Simple Wills from $220.00
Standalone appointment of Attorney or Guardian from $165.00
Simple Wills package (Will, Power of Attorney and Appointment of Enduring Guardian – $400/single – $500/couple)
Testamentary Trust Wills package (Will creating Testatmentary Trust, Power of Attorney and Appointment of Enduring Guardian – $1650/single – $2200/couple)