Tag Archives: Estate Plan

Estate Planning

Estate Planning and Family Trusts

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Estate Planning and Family Trusts – what are the issues?

What even is a family trust? When people talk about a family trust they are generally talking about a discretionary trust; a discretionary trust is a trust where the trustee has discretion over (they can choose what to do with) some or all of the income and assets of the trust. Really this type of trust is better called a discretionary trust or non-fixed trust as the rights to the income and assets of the trust are not fixed.

The words “family trust” relates to making a family trust election with the Australian Tax Office which is a taxation concept which is a topic for a different article.

If you are the trustee of your family trust or director of the trustee company then you could replace yourself on death by leaving a point in your will that XYZ is the new trustee. I have seen this done and also often recommended by accountants to clients when setting up their new family trust and while this may be possible it is often not.

Replacing a trustee is often controlled by a person called an appointor so irrespective of your wishes (as set out in your will) if your trust has an appointer then that appointor can appoint whoever they want as trustee. In the event the appointor is not available or your trust does not have an appointor then your trust deed may set out steps that need to be taken to replace the trustee – these will need to be followed.

I have also heard from clients that “put your assets in a family trust, then they can be passed on to your heirs and their heirs without paying any tax on death” There are a couple of points that I think are important to look at with this

  1. Rule against perpetuities – the laws within Australia prohibit perpetuities – in other words a family trust cannot exist indefinitely, typically the lifespan of a trust is limited to 80 years.
  2. On death you will generally pay capital gains tax (CGT) on any assets sold as part of the administration of your estate but you do not need to sell your assets on death and there are a couple of ways to avoid paying this CGT.

You can transfer Assets directly to your heirs in this case the asset keeps the original cost price from when you bought it and your heir can keep the asset indefinitely and even leave the asset to their heirs paying no tax at the time of your death. (but paying tax if and when they sell)

On death another option would be to create a testamentary trust for example by saying “I leave my rental property on trust with the rent to be enjoyed by my son and the house to be left to my grandchildren do do as they wish when my Son dies” there are a lot of potential benefits to using a testamentary trust including tax benefits and other benefits but their use and what terms you include depend on your situation.

This article is quite general buy hopefully you can see that trusts can be quite complex when it comes to your Estate plan; your Will and other plans. Please consider consulting a professional who has experience working with trusts when planning what will happen with your Estate. You can contact us here.

Estate Planning

The Last Innings

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As we near the end of life many people’s mind’s naturally turn to tidying up their affairs, this often includes things like making sure they have an up to date will and have appointed a Power of Attorney. Perhaps even putting in place some medical care instructions or Funeral plans.

These are all wise things to do, at Maddick Consulting Group we deal with deceased estates quite often and we see some common issues that are not picked up at this stage.

  • If you have super towards the end of your life you may want to consider cashing your super completely. Perhaps even leaving this instruction to your Power of Attorney(ies), the reason is if your super is paid to a non dependant (like your adult children) they will generally pay tax on this. Where generally if the super is cashed out as long as you have met a condition of release you will pay not tax and the funds will then form part of your Estate with no tax payable.
  • Appointing an inappropriate executor to your estate. Some executors are not appropriate; for example anyone who does not live in Australia will have trouble administering your estate, there could also be some adverse tax consequences for your beneficiaries. Another common issue we see is executors that are not good at administration and paperwork…this role of executor is primarily a role of paper work!

Please note the aim of this article is just to highlight a couple of issues we see regularly in our work, please consider your position and get professional advice before acting.

Estate Planning

Life Insurance and Estate Planning when you are Divorced

Warning: This content has been prepared without taking account of your personal objectives, financial situation or needs. Before you make any decision regarding any information, strategies or products mentioned in this newsletter, consider whether it is appropriate to your own objectives, financial situation and needs.

Setting up your Estate Plan when you have divorced is very important, in this article I will look at a common situation.

(this is a made up example): Bob has one child Kim from his first marriage to Cathy. He has now married Sharon and they have a new child Paul.

Sharon and Bob have a house with a mortgage; Bob also has super of 200k.

Bob wants to make sure if something was to happen to him that Sharon and Paul would be provided for as Paul is only 2 and Sharon is not working at the moment; but he also wants to make sure that Kim is provided for and that Cathy can not claim any part of his estate.

Presuming the house they have bought is in Joint Names then if Bob was to die this house will not form part of his estate; it will transfer over to Sharon. Because it is not part of his estate no one can attempt to claim part of it (for example Kim or Cathy). But this also means that Bob cannot leave part of the home to Kim if he wanted to.

With Bob’s super he has two choices he can do nothing in which case his super may be paid to his current wife Sharon or be paid out to his estate (the Super Fund trustee would decide the most appropriate treatment) this could also be open to dispute. Or he can make a binding nomination; in this case Bob’s super payment will be paid to the person or people that Bob nominates. As long as the Binding Nomination is correctly executed this nomination is not open to dispute after Bob dies.

From a tax Point of view payment of a death benefit from super to a “super dependant” such as a current spouse or under 18 child will be tax free.

Essentially Bob has 3 people he potentially wants and needs to provide for; His Daughter Kim, current wife Sharon and their Son Paul. As long as Bob trusts Sharon to look after Paul he can provide financially to Sharon only as Paul is still too young to look after his own finances. While potentially you can have one life insurance policy that provides for all three people (or more) or you can also make a super nomination nominating three people. To minimise the possibility of dispute and make things very clear I would recommend that Bob takes out a life insurance policy outside of super to specifically provide for Kim. Depending on Kim’s age he may want to allow for a testamentary trust to preserve the proceeds from the life insurance for Kim until she is old enough to look after the funds herself.

To provide for Sharon and Paul Bob can leave his super via a binding death benefit nomination. This reduces the ability for Cathy to dispute his will on behalf of Kim. If Bob wants to provide more than the $200,000 super balance, then he can take out a second life insurance policy. This could be held by his super fund (and so paid out in line with the binding death benefit nomination) or outside with the policy owned by Sharon.