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Wills and Succession Planning
The process of arranging your affairs for after your death is known as estate planning. Having an estate plan is an important step to ensure there is an efficient and effective distribution of your estate after your death and can help you by:
- Ensuring your assets are distributed according to your wishes and in a legal and logical manner
- Protecting your loved ones
- Minimising taxation
The most basic estate planning strategy is to ensure that you leave a Will, however good planning should also encompass consideration about your superannuation, trusts, company, or business structures and even whether a Testamentary Trust may be appropriate for you.
Estate planning commonly also includes planning for what happens should you lose the ability to manage your own affairs while you are still alive. To plan for this possibility, you may wish to put an Enduring Power of Attorney and Appointment of Medical Treatment Decision Maker in place to determine who is authorised to make decisions about your personal, financial and medical matters.
|Estate Planning Documents
|While you are alive
|Enduring Power of Attorney
|Personal and Financial decisions
|Appointment of Medical Treatment Decision Maker
|Advanced Care Directive (completed with your GP)
|Preferences regarding medical treatment
|After your death
|Assets in your estate
|Creating trusts for beneficiaries of your will
|Binding Death Benefit Nomination
|Superannuation death benefit entitlements
A Will is an important document that becomes relevant when you pass away. A Will allows you to determine how your assets and liabilities are dealt with after your death. If you don’t have a valid Will, the law will determine how your assets are distributed according to a statutory formula which may or may not reflect your wishes.
A well drafted Will should have the longevity and flexibility to ensure that your estate is distributed according to your wishes in the right ways and at the right time.
In your Will, you can:
- Appoint an executor, multiple executors or alternative executors to manage your estate
- Make gifts of assets or cash that form part of your estate
- Nominate people to care for your pets or minor children
- Establish trusts for ongoing management of your assets for your beneficiaries
When a person dies, all the assets and liabilities of that person are collectively called that person’s estate. This can include assets such as cash, properties, bank accounts and investments that are in that person’s name. A Will can only deal with assets that form part of your Estate.
A good estate plan should consider both your estate and non-estate assets. Non-estate assets include certain assets that are held jointly with another individual, such as property and bank accounts, as those assets will pass automatically to the surviving joint owner.
Trusts and company structures will continue after your death generally speaking and as such, their assets don’t automatically form part of your estate. Usually, the main consideration in estate planning is how to pass control of these entities to persons you wish to benefit or to people you trust will administer them according to your wishes. Typically, the documents associated with these structures will dictate how and to whom you can pass control and this can vary significantly.
Superannuation entitlements are also not considered an Estate asset. Please see our Superannuation section below for further information.
|Your Estate Includes
|Your Estate Does Not Include
|✓ Property, cash, shares or other investments in your sole personal name or owned as tenants in common
|✗ Superannuation and retirement income streams
|✓ Personal belongings and possessions
|✗ Jointly held assets
|✓ Employment entitlements or benefits
|✗ Company or trust assets
Superannuation benefits and any life insurance owned via superannuation do not automatically form part of your estate to be dealt with by your Will. To control what happens to your super benefits after your death, you may wish to put a death benefit nomination in place. Nominations may be either:
- Non-Binding Nomination: a non-binding direction to the Trustee of your superannuation fund as to who should receive the benefit. The discretion to pay ultimately remains with the Trustee.
- Binding Nomination (“BDBN”): binding nominations require your Trustee to pay the benefit in accordance with your directions, provided you have nominated an eligible person. BDBNs must usually be renewed every 3 years, depending on your fund’s policies.
If you don’t have a BDBN in place at the time of your death, the Trustee of your superannuation will have discretion as to where to pay your benefits. Usually, the benefit will be paid to your spouse/partner or your children. The Trustee may also pay the benefit into your estate if you do not have any dependants or if there is conflict around who should receive the benefit.
To ensure your benefits are paid in accordance with your wishes, we recommend checking whether you have any binding nominations in place. If you do not, you may wish to contact your superannuation fund and request their nomination forms. Alternatively, if you have a self-managed superannuation fund, you may wish to have your lawyer or accountant prepare your nomination on your behalf.
Ideally, you should gift any money in superannuation or account-based pensions to your dependants because they will pay little or no tax. Your dependants include your spouse, minor children, others who are dependent on you or live in an interdependent relationship with you.
It is important that you seek taxation and financial advice in relation to your superannuation benefits.
Your Executors (also known as trustees) are the people who you appoint to have the legal authority to manage your estate’s affairs and uphold the wishes in your Will and are responsible for:
- Gathering your assets and paying out any of your debts and liabilities
- Distributing the assets of your Estate amongst your chosen beneficiaries
- Holding any money on trust for minor beneficiaries (unless your Will specifies otherwise)
- Defending any claims against your estate
It is important that you select people who you trust, who understand your financial interest and who can cope with the responsibilities of administering your estate. It is possible to appoint multiple people to act as your Executors (up to a maximum of four), however you should be confident that those people are capable of cooperating and working together to administer the estate. You may wish to include a dispute resolution clause to deal with any potential conflict.
We also strongly recommend that you appoint a substitute Executor who can act if your first-named Executor/s are unable to do so.
Your beneficiaries are the people or entities who you elect to receive a gift or benefits from your estate in your Will. You can decide the type of gift you would like to give your beneficiaries and decide how that beneficiary will receive their gift (i.e outright or through a trust). Types of gifts may include:
- Specific gifts: for example, “my grandmother’s ring” or “my record recollection”
- General gifts: for example, “the sum of $10,000”
- Residuary gifts: for example, “the remainder of my estate after my liabilities are paid”
You must take care when giving specific gifts as, if you don’t own the asset at your death, the gift will fail.
If you give a gift to a beneficiary from your Estate, that beneficiary will be the owner and pay tax on any income generated from the asset. If that beneficiary is declared bankrupt, then the assets can be seized by the trustee in bankruptcy of that beneficiary.
Alternatively, you may elect to have that gift ‘held on trust’ for your beneficiaries. Assets that are held on trust will not be owned directly by the beneficiary. Instead, the assets are owned and controlled by a trustee according to the terms in your Will. The trustee could be your Executors or any other person that you nominate. The various types of trusts available include:
- Minor children trust: the trustee holds assets until the beneficiaries reach a certain age (18 years or older)
- Protective trust: the trustee holds assets for the benefit of a vulnerable beneficiary who is unable to manage their own affairs. This includes a beneficiary with substance dependency issues, minor disabilities or injuries, or personal and financial struggles
- Testamentary Discretionary Trust: like a discretionary family trust, the trustee holds assets and can pay income or capital to a range of different beneficiaries
A Testamentary Discretionary Trust (“TDT”) is like a Discretionary Family Trust, but it only comes into effect after the death of the person who made the Will. While your Will is the document that declares your wishes about the distribution of your assets, a TDT is a separate trust where assets are held and managed on behalf of the beneficiaries of your estate.
Trusts work by separating control of the assets held in the trust from the actual benefit. The person who has control of the trust assets is the Trustee. The Trustee is the legal holder of the assets and is responsible for the day-to-day management and administration of the trust.
An effective testamentary trust can have many people who can potentially benefit from the assets in the trust (beneficiaries) with these benefits at the discretion of the Trustee.
The discretionary nature of the trust is what makes the trust so powerful for asset protection. Because none of the beneficiaries own the trust assets and their only right is to be considered by the trustee, it is very difficult for someone to argue that the assets of the trust belong to any one of the beneficiaries.
A Trustee can also be one of the beneficiaries of the trust, and if that is the case, then the trust assets will ‘look and feel’ more like that person’s assets because they are in control and can choose themselves or their family members to benefit from the trust. If a person is simply a beneficiary without being a Trustee, then whether they benefit from the trust is entirely at the trustee’s discretion.
TDT’s offer a high level of tax flexibility. In essence, trusts are flow-through vehicles for tax purposes, which means the income earned each year from investing the trust assets always needs to be distributed out to beneficiaries and each beneficiary gets taxed on the income they received from the trust at their own marginal tax rate.
The Trustee can choose which of the beneficiaries should receive the income earned from investing the inheritance each year, which allows them to give income to beneficiaries who have lower tax rates. TDT’s offer an additional benefit which is not available to any other trust – beneficiaries under 18 are treated like adults for tax purposes which means they can receive about $22,000 tax free each year.
|Key benefits of a Testamentary Discretionary Trust
|✓ Income can be paid to a wide range of beneficiaries (eg. your children and grandchildren)
|✓ Protects minors and other vulnerable beneficiaries
|✓ Income tax flexibility
|✓ Defers tax for overseas beneficiaries
|✓ Bankruptcy protection
|✓ TDT’s can be optional, so your beneficiaries can obtain advice about whether they would be suitable for their individual needs at the time they will inherit
If any of the following apply to you, you may wish to consider using a TDT in your Will:
Enduring Powers of Attorney
At some point in your life, you may be faced with an event – such as an accident or illness – that leaves you unable to make decisions for yourself. An Enduring Power of Attorney (“EPA”) allows you to appoint a person (or multiple people) to make personal and financial decisions for you during your lifetime if you no longer have the capacity to do so. With an EPA, the person giving the power is called the ‘Principal’ and the person who is granted the power to act is called the ‘Attorney’.
The EPA is a flexible document that allows you to decide who to appoint as your Attorneys, what decisions they can make and when they are able to begin making decisions on your behalf.
EPAs in Victoria are covered by the Powers of Attorney Act 2014 (Vic), which commenced on 1 September 2015. The new legislation did not invalidate any existing EPAs, however, the old EPAs did not include the power to make decisions regarding personal matters as this was previously covered under guardianship. Accordingly, if you don’t have guardianship in place, it may be beneficial to make a new EPA and to give your attorneys the authority to make decisions about personal matters.
You can appoint one or multiple eligible people to make decisions on your behalf, as well as appoint alternate Attorneys to act in case your first-named Attorneys are unable. A person is eligible to be an attorney if they are 18 years of age or older, not insolvent and not your care worker, health provider or accommodation provider for you. Granting decision-making power to a person has enormous implications for your legal, personal and financial well-being, so it is absolutely crucial that you appoint someone who is trustworthy and preferably is familiar with your personal preferences.
When you are appointing multiple Attorneys, you can decide whether they must make decisions jointly (all in agreement), by majority or severally (meaning any one of your Attorneys can act independently). You can also specify, for example, that your Attorneys can act independently for transactions up to a certain value, and after that point they must act together.
You can authorise your Attorney to make various decisions on your behalf, including:
- Financial decisions: includes all financial decisions such as any dealing with your assets, managing your bills and bank accounts and buying or selling real estate.
- Personal decisions: includes all lifestyle decisions such as where you live, who you see, and what activities you participate in.
- Specific personal and or financial decisions: may include powers to do certain things such as “manage my rental properties while I am overseas”
The Powers of Attorney Act also provides limits on what an Attorney can do on your behalf:
|Decisions your attorneys can make:
|Decisions your attorneys cannot make:
|✓ Decide where you live
|✘ Make or revoke a Will or EPA on your behalf
|✓ Decide who you see
|✘ Medical decisions
|✓ Pay your bills
|✘ Act in your place as a company director
|✓ Sign a contract to buy or sell property
|✘ Enter into or dissolve a marriage
|✓ Manage your investments
|✘ Vote for you
You can choose when your Attorney can start acting on your behalf. You have the option of having your EPA take effect:
- Immediately, on the date the EPA is signed
- At a later date, for example “for one month when I am overseas in January next year”
- Upon the occurrence of a later event, for example, if you lose capacity, or if you later authorise in writing that the EPA is to commence
Ordinarily, people will elect that their EPA commence only when they lose capacity. This is because allowing somebody to make decisions on your behalf while you still have capacity is not an attractive idea and is generally not recommended.
A person no longer has capacity if they are unable to understand or retain information relevant to a decision, cannot use or weigh information as part of making a decision or cannot communicate their decision or their views and needs about a decision in any way.
If you don’t appoint an Attorney and are unable to make a decision when it needs to be made, an application would need to be made to Victorian Civil and Administrative Tribunal (VCAT) to appoint somebody as your Guardian and/or Administrator. One or several people can apply to VCAT, who may or may not be the people you would like to act on your behalf, and if there is any disagreement then VCAT may appoint an independent administrator such as State Trustees.
Appointment of Medical Treatment Decision Makers
You have the right to make your own medical treatment decisions. However, if you experience illness or an accident you may be unable to make your own medical decisions (either temporarily or permanently).
An Appointment of Medical Treatment Decision Maker (“AMTDM”) is a formal legal document that allows you to give authority to a person to make medical treatment decisions on your behalf if you do not have decision-making capacity to make the decision yourself. The person you appoint to make medical decisions on your behalf is known as your medical treatment decision maker.
AMTDMs in Victoria are covered by the Medical Treatment Planning and Decisions Act 2016 (Vic), which commenced on 1 March 2018. All appointments made prior to 2018 remain valid and there is no need to alter your pre-2018 AMTDM unless you want to.
You can nominate any person over the age of 18 as your medical treatment decision maker. Unlike under an Enduring Power of Attorney, you can only appoint one person at a time to be your medical treatment decision maker. You can appoint several back up decision makers, however they will only have the authority to make decisions on your behalf if your earlier-appointed medical treatment decisions makers are unavailable.
Your medical treatment decision maker is authorised to make medical treatment decisions on your behalf that they believe you would have made. In making their decisions, they must take into consideration any Advanced Care Directive that you have put in place and any other preferences that you have expressed.
An Advanced Care Directive is a detailed document that sets out legally binding instructions about your preferences for medical treatment, including what you consent to and what treatments you wish to refuse (for example, receiving life support or to be resuscitated). This is NOT the same as an AMTDM and should be completed with the assistance of your doctor.
If you don’t have an AMTDM in place and are no longer capable of putting one in place, the law provides a list of people who can make medical treatment decisions on your behalf. The first of the following people who is reasonably available, willing and able will be your medical treatment decision maker: a guardian appointed by VCAT for medical treatment, your spouse or partner, your primary carer, your children in age order, then your parents and siblings.
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