Advivo shares efficient estate planning strategies to help you get it right and don’t leave a mess for your loved ones.
Many people mistakenly hold a simplistic understanding of their Estate and what will happen with their assets when they are no longer with us. There is a frequent misconception that assets will automatically pass to a spouse. That would only be true for personally owned assets that are covered by a valid will that specifies these assets will go to their spouse. Without a valid will, the default position is different. For those who have assets involved in structures such as Trusts, Companies, and Superannuation the reality is much more complex than simply having a valid will specifying the spouse as the beneficiary.
Goals of Estate Planning
There are several things that a good Estate Plan will be trying to achieve.
1. Ensure that your assets end up where you want them to go
2. Ensure that control of entities that you control ends up where you want it to end up
3. Ideally reduce the likelihood of your estate being able to be challenged, avoiding a costly, stressful, and time-consuming dispute for your family and other beneficiaries
Companies
Companies that a person is involved in remain in existence after that person passes away as they are a separate legal entity. There are two components relevant to a person’s estate plan:
1. Shareholding
2. Directorships/Company Secretary roles
Shareholding held by individuals passes based on the instructions in that individual’s will. Because this forms part of their estate this is subject to any challenges made to this estate. Shareholdings held by other entities (e.g. trusts) are not assets held by that individual and so can’t be challenged as part of a challenge against a will.
Directorships are company secretary roles held by specific people and do not automatically transfer to another person when one dies. As these are roles that are appointed by shareholders based on ownership voting rights these can be changed by shareholders either before or after a director’s passing. From an efficiency viewpoint, if a director’s demise is imminent, it is much easier to appoint new officeholders beforehand as this doesn’t leave the appointment open to any possible disputes over the shareholding held by the person.
Trusts
Trusts have 3 key roles:
1. Beneficiaries
2. Trustee/s
3. Appointors
Beneficiaries are those whom the assets of the trust are held for.
The trustee is the company or individuals who run the trust and are legally responsible for the debts of the trust. This is the role that decides which beneficiaries get distributions in a discretionary trust.
The appointor(s) is the person or people who hire and fire the trustee. This is who ultimately controls the trust.
Trusts are not part of a person’s estate because the assets they hold are not held directly by any one person. When considering estate planning the things to think about for trusts are who is the trustee (or trustee company director/s) and the appointors.
The goal should be to ensure that the trust deed leaves these positions to whom you would wish them to go. If the deed doesn’t follow this then it will need to be updated by an experienced estate planning lawyer. This avoids situations when someone else can take either short-term (trustee) or long-term (appointor) control of the trust against your wishes.
Superannuation
Superannuation does not flow according to a person’s will. Instead, there is a separate nomination process that is followed to determine where a person’s superannuation ends up. Therefore, unless directed to their estate in their nomination, it won’t form part of the estate.
These nominations are made by the person with their super balance whilst they are alive and provided to the trustees of their superannuation fund in writing. These can be either binding or non-binding. If they are binding, then the trustees are forced to follow the direction of the nomination. If they are non-binding (or if there is not a valid nomination) then the trustees decide who the superannuation goes to based on their assessment of the people who are connected to the deceased superannuation member.
There have been frequent requests made to superannuation trustees from supposed dependants which have caused problems for blood relatives of the deceased so this is a very important process to complete and complete correctly. Most people will have some life insurance rolled up in their superannuation account so even young people will regularly have super balances exceeding $100,000 that could be contested by anyone claiming to have been in a relationship with them.
There are different tax treatments for the person receiving your superannuation depending on whether they are classified as tax dependent or not.
A tax dependant includes:
• A current spouse, including defactos
• Children of the deceased who are under the age of 18
• Any other financial dependants
Super lump sums paid to tax dependants are tax-free. For non-tax dependants, there is tax payable as follows:
• Taxable components with a taxed element maximum tax of 15% plus Medicare levy
• Taxable components with an untaxed element maximum tax of 30% plus the Medicare levy
There are strategies that can be available in some instances past retirement age where funds are withdrawn and recontributed to change the components of the superannuation balance to reduce this tax to beneficiaries. These are not steps to take lightly or without assistance from a financial planner. Accountants are unable to assist with this as it is caught under the financial advice legislation.
Seek Professional Advice
Getting your estate planning right is not a straightforward process. If you have any financial dependants whether they be a spouse, children, or others, to ensure that your estate ends up with them we recommend that you have your documentation prepared by and or reviewed regularly by estate planning specialist lawyers. At Advivo we recommend to our clients that we are also involved in the process due to our understanding of our clients’ structures and affairs. The involvement of both professionals achieves a better outcome, ensuring that nothing is missed.
