Estate Planning
-A Financial Planning
Perspective
SWA Financial Planning
Agenda
1. Power of Attorney and
Guardianship
General Advice Disclaimer
The information in this presentation is of a general nature only and is not intended to be, and is not, a complete or definitive statement of the matters described in it. The information does not constitute specific legal or
investment advice and does not include recommendations on any particular securities. Although statements of fact in this presentation have been obtained from and are based upon sources we believe to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions and estimates included in this communication constitute our judgement as of the date of this communication and are subject to change without notice. This presentation has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Before making any decision you should consider, with the assistance of your personal financial adviser, whether it is appropriate in light of your particular investment needs, objectives and financial circumstances. We do not accept any liability for any direct or indirect loss arising from any reliance on the information contained in this presentation. The contents of this document may not be reproduced or distributed in any manner without prior permission.
Agenda
1. Power of Attorney and
Guardianship
Power of Attorney (POA)
• General Power of Attorney - legal documentallowing you to appoint and authorise another person (Attorney) to act on your behalf.
• Allows Attorney to make financial decisions and transactions on your behalf.
• Enduring Power of Attorney - continues to be valid if you lose mental capacity.
Important – A POA can be used only whilst you are still living – it is invalid and cannot be used after your death!
Who can Grant a Power of Attorney?
• Must have sufficient mental capacity to understand the scope and implications of granting a POA. • What is capacity?
– Understand the power you are granting to the Attorney, the decisions Attorney can make on your behalf, and that your Attorney can make these decisions without consulting you.
Who should be your Attorney?
• Carefully consider who you appoint as they are not supervised.
• Potential for misuse of power!
• Note you can appoint more than one person jointly, severally or jointly and severally
• Can appoint more than one attorney or have cascading POA
Limitations of POA
• Cannot create or alter your Will
Common uses of POA
• Attorney is able to sign if you:
– Are on holidays
– Are injured in an accident – Are ill
– Are in a nursing home – Have low mobility
– Have lost capacity (eg. dementia)
Example – Phil and
Christine
• Phil has advanced dementia and now needs full time care (entry cost $200,000).
• Phil and Christine’s assets are as follows:
• Without an Enduring POA, Christine couldn’t sign to withdraw Phil’s superannuation, or sign a contract to downsize home and
Joint Phil Christine
Home $500,000
Savings $25,000 $5,000
Example – Phil and Christine
• Fortunately Phil has granted Christine an Enduring POA so Christine uses Phil’s superannuation and savings to help pay for costs to enter into aged care facility
• Within a year, Christine passes away unexpectedly, and Phil’s assets are then as follows:
• Without an alternative Enduring POA, Phil’s adult children cannot assist with managing his finances or selling the vacant family home to provide for Phil’s ongoing care costs
Phil
Home $500,000 Savings $10,000 Superannuation $40,000
What if I do not have a POA?
• Your spouse / family will need to make
application to the Court or Guardianship Tribunal to have a Financial Manager appointed.
• The Financial Manager appointed could be spouse, family member, or Public Trustee. • The Protective Commissioner may be required
Enduring Guardianship
• What is Enduring Guardianship? – Legal Document that allows you to decide who will make personal and lifestyle decisions on your behalf when you are no longer able to.
• Who can appoint an Enduring Guardian? – Must have sufficient capacity to understand what they are doing and the powers they are granting.
Enduring Guardianship
• Responsibilities of an Enduring Guardian
– Must act in your best interests at all times – Must take into account your wishes
• Limitations of Enduring Guardianship
– Cannot create a Will
– Cannot manage your finances
• When does it start?
What if I do not have an
Enduring Guardian?
• Generally decisions fall to next of kin
• If any parties to decision do not agree, may need to apply to Guardianship Tribunal to have a
Guardian officially appointed
• Guardian could be a relative, close friend or the Protective Commissioner.
Advanced Health Directive
An Advanced Health Directive is a document
that can be prepared in addition to your
Allows for health and lifestyle decisions to be made on your behalf
Enduring POA
Allows for financial
decisions and transactions to be made on your behalf
Remember – Both documents are “Living Documents” They are used whilst you are still alive and become
invalid upon death
Enduring
Guardianship
Agenda
1. Power of Attorney and Guardian
2. Treatment of Super and
Pensions
What happens to Super and
Pension funds on death?
• Often not part of your Estate (ie. not
covered by your Will).
• Trust Deed of the fund determines how
and to whom superannuation death
benefits may be paid.
• Superannuation law imposes restrictions
on trustees.
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Who can receive a Super Death Benefit?
1. Dependants at the date of death:
• Spouse -including de facto partners and same sex partners (subject to the fund deed)
• Child (any age) – including natural, step and adopted children
• Financial Dependant • Interdependant
Important Note: Step Child
• ATO released interpretative decision in September 2011 which states that a person ceases to be a ‘stepchild’ for the purposes of being a ‘dependant’ when the legal marriage of the natural parent to the member ends.
• ie. upon death of the natural parent or divorce.
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Who decides who will receive a
Super Death Benefit?
4 methods:
1. Reversionary – nominated at
commencement of pension.
2. Trustee Discretion – If no valid Binding
Death Nomination trustee of the
Who decides who will receive a
Super Death Benefit?
3. Deed Default – Governing rules of the
fund outline how death benefits are paid.
- For example fund trust deed may state that benefits are automatically paid to spouse or to children or to the estate.
4. Binding Death Nominations (BDN’s) –
Allow you (rather than the trustee of the
super fund) to determine who will receive
your death benefits.
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Binding Death Nominations
• Trustee is bound to pay to the beneficiaries nominated as long as nomination is:
– Allowed for under the terms of the trust deed; – Properly completed and is still in effect (eg. it
has not lapsed);
2 types of Binding Death
Nominations
1. Lapsing Nominations – Valid for 3 years
only so must be updated.
2. Non Lapsing Nominations – Valid
indefinitely.
– Only allowed in some fund deeds and must meet trustee requirements.
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Fund Nomination Available
Colonial First State Non Lapsing BDN Macquarie Non Lapsing BDN MLC Masterkey Non Lapsing BDN Perpetual Wealth Focus Lapsing BDN
Russell Lapsing BDN
BHP Lapsing BDN
BlueScope Lapsing BDN First State Lapsing BDN State Super Deed Default Auscoal Super Lapsing BDN
Auscoal Pension Deed Default / Lapsing BDN Self Managed Super Fund ??? - Depends on Trust Deed
Important Note: Lapsing
Nominations
• Consider what the implications are if you
are unable to renew the nomination when
it expires (eg. if you no longer have
capacity)?
– Who is your Attorney (under POA) and can they renew the nomination?
– If Attorney is the beneficiary on the
nomination they may not be able to renew.
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Example – Bob and Jean
• Bob has appointed his wife as his POA with a basic Enduring POA.
• Bob now has dementia.
• Jean is nominated as the beneficiary of Bob’s pension fund but the BDN has lapsed.
• Jean may not be able to renew as she will be conferring a benefit on herself.
Example - Bob and Jean
Possible Solution:
• Consider clause in POA that gives express
power to renew or update BDN (could be
very specific that can only renew not
change)
• If more than one attorney they may be
able to renew in favour of Jean.
Need to be very careful so should seek legal
advice or talk to your adviser at SWA.
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How are Super Death Benefits Paid?
• Can be paid as a lump sum or as a pension.• Determined by the Trust Deed of the fund. • Law restricts payment of pensions to child
beneficiaries. Child must be:
– under 18;or
– between 18 and 25 and financially dependent; or – disabled.
• Payments to estate are lump sum.
How are Death Benefits Taxed?
Beneficiary Tax Dependant?
Spouse Yes
Child under age 18 Yes Child aged 18 or over No Financial dependant Yes Interdependent Yes Legal Personal Representative
(Estate)
Only to the extent that one or more of the tax dependants listed above may be expected to benefit from the estate
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• Definition of dependant for tax differs from super definition of who can be paid the benefit:
How are Death Benefits Taxed?
• Tax Dependant
-100% tax-free
• Non Tax Dependant
Component Tax Payable on Lump Sum
Tax Free Tax-free
Example – Elaine and Bill
• Elaine (age 63) is married to Bill (age 68). • Bill nominates Elaine as beneficiary of his
super/pension funds via a BDN. • 100% tax free if taken as lump sum.
• Option to continue as death benefit pensions – tax free as Elaine and Bill over 60.
• Possible Anti-Detriment Payment if taken as a lump sum?
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Example – Jim
• Jim is divorced and leaves his super
($500,000) to his two children (50/50) under
a BDN.
– Katie age 22 and full-time student living at home with Jim.
Example – Jim
• Katie’s benefit is 100% tax free as she is a financial dependent of Jim – receives
$250,000
• Sam’s benefit will be subject to tax as follows:
• Possible Anti-Detriment Benefit? 37
Component Amount Tax Payable
Tax Free $100,000 Nil Taxable (Taxed
Element)
$150,000 @ 16.5% = $24,750
Net Death Benefit $225,250
What is an Anti-Detriment Payment?
• Additional lump sum amount paid by super fundon death as compensation for the tax deducted from contributions.
• Payable to eligible beneficiaries: – spouse or former spouse; – a child of any age, or
– an Estate to the extent that the ultimate
Anti-Detriment Payments
• Can be paid whether the deceased was in
the accumulation (super) or income stream
phase (eg account based pension).
• Only payable if death benefit taken as a
lump sum.
• Not payable by all funds.
• Can be difficult for Self Managed Super
Funds to pay.
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Example - Jim
• Jim left super/pension ($500,000) to his
beneficiaries
– Katie - Student - age 22 – Sam - Working - age 25
Example - Jim
Component Katie’s Benefit Sam’s Benefit
Gross Death Benefit - Tax Free 40% - Taxable 60%
$250,000 $250,000
Anti- Detriment Payment $21,215 $21,215 Total Benefit $271,215 $271,215 Tax Payable $Nil $26,850 Net Benefit Payable $271,215 $244,365
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Lump Sum versus Pension Death
Benefit – Which is Best??
• SWA consider
– Financial Situation – Goals and Objectives
– Amount of Anti-Detriment Payment – Ongoing Tax Implications
– Ongoing Centrelink Implications
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Example – Elaine and Bill
• Elaine– Age 63• Bill passes away with $500,000 in pension funds*
• Elaine has other investments that generate taxable income of $29,500
• Elaine has to decide whether to continue the pension or take a lump sum payment
* Assumes 80% taxable component, eligible service period start date 1/1/1980
• Lump Sum $500,000
• Anti-detriment payment $56,300
• Elaine under 65 - can contribute up to $600,000* back into pension funds where internal earnings and pension payments will be tax free
SWA would advise Elaine to take the
payment as lump sum
* Over two financial years using non-concessional contribution cap of $150,000 per financial year with bring forward rule (two future financial years)
triggered.
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Example – Sally and Jack
• Sally – Age 68, good health and not working • Jack passes away with $500,000 in pension
funds*
• Sally has other investments that generate taxable income of $29,500
• Sally has to decide whether to continue the pension or take a lump sum payment
* Assumes 80% taxable component, eligible service period start date 1/1/1980
• Lump Sum $500,000
• Anti-detriment payment $56,300
• Given age can not contribute to superannuation
• If lump sum taken and invested in a term deposit
paying 6% pa increased tax liability of $12,869 pa
SWA would likely advise Sally to
continue the pension
Note: Anti-detriment amount payable to Sally and Jack’s adult children when Sally dies.
Example – Mike and Sue
• Mike and Sue both age 67 are in a 2nd
marriage and have adult children from
previous relationships.
• Mike and Sue share their cost of living but
hold some assets individually.
• Mike is concerned who he should
nominate as beneficiary when he
completes his BDN’s.
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Who does Mike leave super to?
1. Sue
Tax-free Pension or Lump Sum + Anti-Detriment Risks: - Sue spends all money - Sue remarries and listsnew partner as beneficiary - Sue lists her own children as beneficiaries
(excluding Mike’s children)
2. Adult Kids
Children will receive lump sum and likely be subject to tax on taxable
component at 16.5%.
Children will receive Anti-Detriment Payment.
Sue may have insufficient funds to
live?
3. Estate
Testamentary Trust to provide for Sue and also ensure that
remaining benefit is left to his children
May be eligible for Anti-Detriment
Benefit (depends on ultimate beneficiary
Example - June
• June is Widowed and is unsure whether
she should nominate her adult children as
beneficiaries on her BDN or her estate?
• Make sure children are not step children
who are not an eligible superannuation
dependant under ATO ruling.
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Who does June leave super to?
Children
Funds will not form part of Estate somay reduce cost. Distribution to children will be more
timely.
Children eligible for Anti-Detriment Benefit.
Children subject to tax at 16.5% on taxable component. May offer some protection from Estate
challenges.
Estate
Can be distributed to any beneficiary-not just super dependant. May be eligible for Anti-Detriment
Benefit (depends on ultimate beneficiary entitlements). Estate subject to tax at 15% on taxable component (no Medicare
Levy).
May offer some asset protection and tax benefits if Testamentary Trust
Summary
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Death Benefit can be paid to the following
Dependant for Tax purposes?
Eligible for Anti-Detriment Payment?
Spouse Yes Yes
Child under age 18 Yes Yes Child aged 18 or over No Yes
Financial dependant Yes No, unless a former spouse Interdependent Yes No, unless a former
spouse Legal Personal
Representative (Estate)
Only to the extent that one or more of the dependants listed above may be expected to benefit from the estate
Only to the extent that a spouse, former spouse or child of the deceased can reasonably be expected to benefit from the estate
Important
• Super/pensions are a major asset of
many.
• Making BDN’s and keeping them up to
date can be as important as having an up
to date Will.
How do SWA help?
• SWA Financial Planning monitor when
Lapsing BDN’s expire and send you
replacement nominations.
• Your Annual Review includes a table
showing what nominations you have in
place, who your beneficiary is and when
they expire.
• Where available we suggest Non Lapsing
BDN’s.
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Agenda
1. Power of Attorney and Guardian
2. Treatment of Super and Pensions
3. Wills and Testamentary Trusts
4. Other Estate Planning Tools
Why Do You Need A Will?
• Outline your wishes for distribution of your
assets after you die.
• Nominates the person you wish to appoint
as executor and your beneficiaries.
• Without a Will assets are divided
according to law which
may not be in line with
your wishes.
Who Can Make A Will?
• Must be 18 years of age.
• Must have sufficient capacity:
– To understand that you are making a Will.
Laws of Intestacy
(Dying Without A Will)
• If there can be no distribution to cousins the Estate passes in full to the NSW Government
Family Circumstances Who Receives
Spouse and no children 100% to surviving spouse Spouse and children of the relationship 100% to surviving spouse Spouse and children where at least one child is from
another relationship
Spouse receives - First $350,000 - Personal effects
- Half of any remainder of the estate
Other half of remainder distributed equally among all children of all relationships
Children and no spouse Estate divided equally among all children Other relatives if no surviving spouse or children Estate distributed based on order of priority:
a) Parents b) Siblings c) Grandparents d) Aunts and Uncles e) First Cousins
Example – Michael
• Michael married to Betty for 42 years. • 3 children together.
• Michael has a son from another relationship. • Michael has assets worth $900,000 (including
Example – Michael
Distribution of Estate
Betty
$625,000 plus personal effects
4 Children
$68,750 each child
Note: If Betty keeps the house she will have only $25,000 in financial assets to supplement her Centrelink payment for the rest of her life!
First $350,000 plus 50% of remainder plus
Personal Effects
50% of amount above $350,000 - shared equally
Wills – Understanding The Roles
1. Testator – the person making the Will. 2. Executor – the person responsible for
administering your Will after death (becomes Trustee upon the Grant of Probate).
• should be someone who is trustworthy, capable and available and who is likely to survive you.
3. Beneficiaries – those who will receive
benefit from your estate.
Important to Review your Will
• Will should be reviewed on a regular basis.• You should ensure that your nominated executors are appropriate, still living and are still willing and able to act.
• You should ensure that your beneficiaries are
current and that there are no special circumstances that apply to your beneficiaries that should be taken into account (eg addiction, marital or financial
problems).
When Should You Review Your Will?
• Marriage breakdown
• Getting married
• Death of a partner
• Problems with one of your beneficiaries
• You need to change your executor/s
• You wish to change your instructions
Example – David
• David was divorced and was living happily with a new partner.
• He had 3 adult children with large mortgages and young children.
• He owned his home (value $500,000). • Other financial assets of approximately
$300,000.
Example – David
• 8 years before he died David made a free
Will.
• He provided the following instructions:
– Gift of $100,000 to Charity
– $100,000 as a lump sum to his new partner – His partner was granted life tenancy in his
home
Example – David
• At time of death David had $50,000 of financial investments remaining.
• Problem: - Estate had an obligation to pay $200,000 to specified beneficiaries
Not enough funds to make gifts Children as residual beneficiaries were invoiced $150,000 for shortfall They had no capacity to pay $50,000 each Partner upset + children put in untenable position
What assets are distributed by your Will?
Asset Type Estate Assets Non Estate Assets
Real estate If in individual names or held jointly as Tenants-in-Common
If held under joint tenancy
Bank accounts If held individually If joint accounts
Shares & Managed Funds
If held individually If joint accounts
Superannuation Where Estate has been nominated or trustee bound to pay to Estate
Valid nomination to a dependant
Personal Property (personal effects, car etc)
What is a Testamentary Trust?
• A trust established by your Will upon
death.
• Trust is funded from Estate Assets.
• Many forms of Trust – can be tailor made.
• Ideal succession vehicle for people who
have significant assets, a complex family
situation or at risk beneficiaries.
Complex Family and At Risk
Beneficiaries
• Complex Family Situation may include:
– Second or more marriage
– Children from previous relationships
• At Risk Beneficiaries
– Drug, alcohol, gambling dependencies – Mental illness or disability
– Business owners
Advantages of a
Testamentary Trust
• The two main advantages are:
– Income Splitting – tax effective passing of wealth.
– Asset Protection – protection of inheritance from claims.
• These advantages arise from:
– Flexibility as to how and when assets are distributed; and
– Separation of ownership and entitlement.
Advantages – Income Splitting
• Minimise tax paid on distributions to beneficiaries. • Split income to beneficiaries on low marginal rates
of tax.
Example:-– NonExample:-–working spouse; – Children or Grandchildren
• Distributions to children from a Testamentary Trust are taxed at adult tax rates instead of minor penalty tax rates.
– Tax free threshold of $18,200 from 1 July 2012
Example – Amelia
• Amelia is 75 with $1.5 million in assets. • 2 adult children, Marcus and Donna.
– Marcus is married to Michelle and has 2 children Zac age 10 and Ava age 7.
– Donna is single.
– Both children are debt free.
• Marcus and Donna are both on 38.5% marginal rate of tax due to their work income.
• Michelle is a stay at home Mum and does not have any taxable income.
Example – Amelia
Donna Amelia Donna’s Trust – $750,000 Marcus’ Trust – $750,000Example - Amelia
• Marcus can save $17,325 pa in tax.
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Marcus’ Trust- $45,000 Income Donna’s Trust - $45,000 Income Beneficiary Amount of Distribution Tax Payable Beneficiary Amount of Distribution Tax Payable
Michelle $15,000 $Nil Donna $45,000 $17,325
Zac $15,000 $Nil
Ava $15,000 $Nil
Advantages – Asset Protection
• Protection of inheritance from claims:
– By Creditors – for beneficiaries in business or occupations at risk of being sued;
– On Divorce – upon breakdown of beneficiaries relationship.
• Safeguard inheritance for beneficiaries who may be spendthrift or have addictions eg. drugs, alcohol, gambling.
Example – Ruth
• Ruth aged 76 passed away.
• Her Will leaves her entire estate of $800,000 to her only son Bill.
• Bill is a problem gambler and has accrued a debt of $50,000.
• Ruth’s Will sets up a Testamentary Trust.
Example – Ruth
• How Bill’s inheritance is protected:
– No day to day control (Ruth appoints an alternate trustee)
– Trustee pays Bill’s rent and bills and provides monthly income for his cost of living
– No large lump sums available so Bill is unable to gamble away his inheritance.
Example – Jimmy
• Jimmy is aged 65
• His only daughter Marcy is a lawyer running
her own practice.
• Jimmy makes a Will directing that his estate
of $1 million be placed in trust for Marcy.
Example – Jimmy
• How Marcy’s inheritance is protected:– Protection from third parties should Marcy be sued by a client or should her practice fail and the business owe creditors.
– The ownership of the assets remains in the trust so cannot be claimed.
• Marcy may be able to benefit from splitting income with her spouse and kids in order to save tax.
Example - Simone
• Simone aged 66 cares for her only daughter Celia aged 40.
• Celia was born with a disability and requires full time care.
• Simone’s Will provides that her entire estate of $850,000 is to be held in trust for Celia.
• Special Disability Trust which receives concessional treatment by Centrelink.
• Trustee acts as Celia’s financial manager and has the flexibility to use income and capital to meet Celia’s ongoing care and accommodation needs as they arise.
Example – Ken and Marion
• Second marriage
• Both have adult children • Family home in joint names • Assets owned as follows:
• Ken would like to provide a reasonable inheritance for his children, but he wants to provide for Marion during her lifetime as well.
Ken Marion Joint
Motor Vehicles $20,000 $10,000
Example – Ken and Marion
• Considerations for Ken:Asset Current Arrangement Options to consider?
House Will transfer automatically to Marion
Change to Tenants in Common so 50% Marion and 50% Estate
and/or life tenancy
Savings Will form part of estate Transfer to joint names and balance will revert to Marion
Superannuation Depends on current death nominations
1. Nominate LPR (Estate) and use Testamentary trust to control
distribution 2. Nominate children directly
3. Nominate Marion directly 4. Combination
Example – Ken and Marion
• Things to watch:
– Transfer of super to adult kids not as tax effective as transfer to Marion.
– Marion or Children can lodge a Family
Example – Ken and Marion
• Ken decides to leave the house in joint names.
• Ken transfers his savings account to joint names so that these funds will automatically transfer to Marion.
• Ken decides that would prefer to forego the tax
concessions associated with superannuation pensions and direct his Super Death Benefit to his Estate.
• He complete BDN’s on his super and pension funds nominating his Legal Personal Representative (ie. his Estate).
• Ken updates his Will to include a Testamentary Trust.
Example – Ken and Marion
• As only beneficiaries of Ken’s Estate are his spouse and his kids the Estate should be eligible for Anti – Detriment payment. (Note: this may not be the case if
Example – Ken and Marion
• Ken’s Will states that his two children will each receive an immediate capital distribution of $150,000 ie.
$300,000.
• Balance of Estate to be held in trust. He specifies that Marion can access income from the trust. He specifies also limited circumstances when capital can be drawn eg. house maintenance.
• Ken appoints his favourite nephew who is an accountant to control the trust to avoid disputes.
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Agenda
Other Estate Planning Tools
a) Life Tenancy
b) Joint Tenants versus Tenants in Common
c) Using Binding Financial Agreements
d) Loans and Gifts to Children
Life Tenancy
• Provides right for someone to reside in a property under specific terms.
• Ownership can be retained in the Estate or transferred to beneficiaries.
• Can specify cease date – life tenant’s death or a specified event, eg: marriage
• Common uses
– second relationships
Example - Margaret
• Margaret has 3 daughters
• Janine lives with and now cares for
Margaret
• Margaret has two other daughters – Ellie
and Barb
Example – Margaret
• Margaret’s Will gives Janine life tenancy.
• Will gives Janine the ability to sell the property and relocate. Any surplus to be distributed in accordance with the residual terms of Will (split evenly between 3 beneficiaries)
Joint Tenants vs Tenants in Common
• Joint Tenants automatically reverts to surviving joint holder (does not pass through your estate) • Tenants in Common allows your share of an
asset to pass to your estate and be distributed in accordance with your Will.
• Transferring ownership to Tenants in Common can see your share bequeathed to your children, whilst your spouse owns their share
independently.
• Can be used in conjunction with life tenancy.
Example – Ian and Judy
• Second marriage, both have adult children• Both sold own homes to purchase a new home together • On Ian’s death:
Ownership Structure
Joint Tenants Tenants in Common -50/50
(with Life Tenancy in Ian’s Will)
Who lives in the house?
Judy Judy Who owns the
house?
Transfer of Main Residence
• Can transfer home from Joint Tenants to
Tenants in Common in equal shares (ie.
50/50) or vice versa without stamp duty.
• Where property is in one name can
transfer into joint names with spouse or
defacto or Tenants in Common in equal
shares (50/50) without stamp duty.
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Example – Ken and Marion
• Second marriage, both have adult children • Assets owned as follows:
• Marion very little funds but Ken wants to ensure she is taken care of.
Ken Marion Joint
House $650,000
Motor Vehicles $20,000 $10,000
Example – Ken and Marion
• Considerations for Ken:• Transfers will not incur stamp duty.
Asset Current Arrangement
Options to consider?
House Will form part of Ken’s estate and Marion may need to vacate
1. Life Tenancy to Marion (owned 100% by estate) 2. Joint Tenants
(owned 100% by Marion)
3. Tenants in common with Life Tenancy (50/50 Marion and estate)
Binding Financial
Agreements (BFAs)
• Mechanism to reduce uncertainty and protect assets
• Mutual agreement as to split of assets • Each party must receive their own advice
When should Binding Financial
Agreements be used?
• Second and subsequent relationships
• Protects assets of both parties and their respective families
• Particularly if asset imbalance coming into relationship • Often used in conjunction with Life Tenancy and
Testamentary Trust arrangements
• If particularly concerned about family wealth
protection, consider clause for children to have BFA in place in order to access capital of Testamentary Trust
Example – Bob and Betty
• Bob has 2 children and Betty has 2 children • Both come into the relationship with financial
independence and want to ensure assets are protected for their respective children
• Obtain Binding Financial Agreement detailing what assets they are bringing to the relationship and how they will be split in the event of relationship
breakdown
• Update Superannuation BDNs to pay funds to respective children or Estate
• Update Wills
– Bob provides main residence Life Tenancy for Betty – Each providing part of Estate to each other, with the residual to their own children in Testamentary Trust
Example – Bob and Betty
Loans / Gifts to Children
• Important to receive legal advice and documentloans to family members
• Documented loans secured against property may provide greater asset protection
Loans to Children
• Loans may form Estate assets and may be dealt with in your Will.
• It may be important that your Will has specific clauses to take into account loans • Ensure clause that the loan
is callable on the occurrence of certain events to prevent against future relationship breakdowns of children.
How do I approach my partner
and family with these issues?
• Many people are reluctant to discuss
these issues with new partners and
children
Agenda
1. Power of Attorney and Guardian
2. Treatment of Super and Pensions
3. Wills and Testamentary Trusts
4. Other Estate Planning Tools
5. Practical Issues around Death
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Practical Issues around Death
1. Funeral Expenses
2. Centrelink
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Funeral Expenses
• Check for a funeral bond or if pre-paid
• Upon death individually held accounts will be frozen - however funds may be released to pay for funeral expenses
• Provide invoice to financial institution and cheque will be issued
• Consider maintaining sufficient cash reserves in joint accounts or in each person’s name
Centrelink
• Most funeral directors will notify Centrelink
• Surviving spouse/partner immediately
assessed under single thresholds and
payment based on single rate
• For example: Age Pension (home-owners):
Single Couple
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Bereavement Payment
• Eligibility automatically calculated once
Centrelink notified
• Additional lump sum payable to:
– Surviving spouse/partner (where both in receipt of payments)
– Carer Payment recipient when the person being cared for dies
Bereavement Payment
• Eligibility based on what ordinarily would
have been received (as a couple) less
actual single entitlement up to 14 weeks
• Eg: Death of an Age Pensioner (on full rate). Surviving spouse is an Age Pensioner entitled to the full rate: Age Pension before $1,139 pf combined Age Pension after $756 pf
Difference $383 pf
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Assessable Assets
• Assets of deceased (including
superannuation and pensions) not
assessable until transferred
• Centrelink allow up to 12 months to settle
the estate but cannot delay in order to
receive additional payments
Example – Tom and Suzy
• Tom aged 88 has passed away
• Suzy aged 85
• Total assets of $590,000 at date of death
• Receiving age pension of $326 per fn each
• Suzy sole beneficiary of estate
Asset Tom Suzy
Bank Accounts* $25,000 $25,000 Shares $70,000 $30,000 Account Based Pensions nil $400,000 Lifestyle Assets* $20,000 $20,000 Total $115,000 $475,000
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Example – Tom and Suzy
Centrelink Implications Amount
Age Pension – Suzy (once Centrelink notified)
$323 per fortnight
Bereavement Payment $2,303 one-off lump sum Age Pension – Suzy
(once assets transferred)
$151 per fortnight
Important Legal Documents
• Death Certificate (usually issued 2 – 6
weeks after date of death)
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Probate
• A Court Order confirming the Will is valid
and that the Executor can administer
• Generally required if any single estate
asset exceeds $25,000
• All estate assets must be listed in the
application
Probate Fees
• Originating Fee
$926
• Plus Filing Fee based on assets:
Between $50,000 and $250,000 $711
Between $250,000 and $500,000 $898
Between $500,000 and $1,000,000 $1,355
$1,000,000 or more $1,803
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Should Probate be Avoided?
• May be appropriate – only in certain
circumstances
• If appropriate minimise estate assets:
– Savings / Term Deposits in joint names
– Binding Death Nominations on superannuation and/or pension accounts
• Consider legal and stamp duty costs
versus Probate costs
• Must consider tax planning whilst alive!
• Mr and Mrs King have $200,000 in term
deposits and ask should they place into
joint names in order to avoid probate
should one of them pass away?
Mr King other taxable income
$40,000
Mrs King other taxable income
$12,000
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Example – Mr & Mrs King
• If held jointly additional tax as follows:
– Mr King $2,130 per year
– Mrs King $Nil
• If held in Mrs King’s name only additional tax as follows:
– Mr King $Nil
– Mrs King $Nil
• Additional ongoing tax liability of $2,130 per annum versus one off Probate fee of $1,637*
*assumes Mrs King’s estate between $50,000 and $250,000, no solicitors costs included
Taxation Obligations
• Estate may require a tax file number if
assets held for some time before being
distributed
• Executor is responsible for lodging the
estate tax return
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SWA
• SWA generally advised via the Illawarra
Mercury, family or friends
• Multiple Certified copies of Death
Certificate and Will required initially
• Must consider:
– Centrelink eligibility – Tax planning
– Anti-detriment payments
Surviving Spouse / Partner
• SWA will work with surviving
spouse/partner (generally the Executor)
• Advise and coordinate investment fund
paperwork
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