Estate planning addresses the protection of loved ones, and distribution of wealth on death, and the main vehicle for disposing of assets following death is a “Will.” As morbid as the subject may appear, the process can be an exciting evaluation of a client’s life and consideration of the many roles a client plays in the family and community. A Will is not just about leaving one’s wealth—it is a wish list and dream for loved ones of a client. It is also a protective guard for people with special needs. Firstly, no Will is simple!
This is even more so where the client has special needs to consider. The Will appoints Executors to collect and distribute the Estate. Without protective structuring, a significant portion of a “simple estate” can be lost to the creditors and predators of the intended beneficiaries. Whilst little tax may arise from the passing of shares and property from an estate to a beneficiary, the ultimate sale of these shares and property where such assets are held “by a beneficiary” (in lieu of a Testamentary Trust) can result in a significant, and unnecessary tax result. Therefore, the writer highly recommends the use of “Testamentary Trusts” in clients’ wills.
Secondly, in the majority of cases, a Testamentary Trust is appropriate.
We hear too often, “I just don’t want something I can’t understand” or “It is up to my beneficiaries to decide how to spend it” or “I don’t care if they waste it, it’s theirs.” People work their lifetime to generate wealth, but spend so little time on trying to understand how to protect their wealth for the next generation. With the simple inclusion of a properly drafted Testamentary Trust, a client can have the benefits of appropriate asset protection and tax planning for their beneficiaries.
Thirdly, the use of Protective Trust Structuring inside of Wills is simple, achievable and appropriate.
If you are planning and have a beneficiary which is particularly vulnerable to abuse, or is unable to manage their own monies – a Protective Trust should be considered.
Sadly, before the advent of the protections afforded by the Special Disability Trust legislation, many inheritances to persons with special needs were lost due to poor management and/or greed by the Trustees of each such Trust. Many times, parents left their wealth to a sibling or friend of the family, to manage “on trust” for the person with special needs. Significant litigation resulted from the abuses which followed.
Thankfully, families can rely on an alternative protective structure, known as the Special Disability Trust. The Trust can be created both during the lifetime of the client (such as in the circumstance where an aging parent seeks to move to a retirement home and the aging parent uses the proceeds of the sale of the home to purchase an alternate accommodation for their child), as well as through deceased estates. There are significant restrictions to their use, but NLG notes that the most important feature is the protection the Trust demands. The Trustees must be either prescribed persons (accountants, solicitors, Public Trustee, etc) or two persons who do not otherwise qualify as a prescribed person. Further, the only beneficiary must be the person with special needs and the uses of the Trust are limited for the benefit of the person with special needs.
In the writer’s opinion, all properly drafted Wills in which a person with special needs benefits, must also incorporate a “Special Needs Protective Trust” which in many ways mirrors the Special Disability Trust, but offers a broader gambit of application. For example, the Special Disability Trust cannot be used to pay for the food of a person with special needs, however, the Special Needs Protective Trust can fund these costs. The writer generally recommends a matching Trustee panel for both Trusts. The major difference is that assets held within the Special Needs Protective Trust are included as assessable for Centrelink pension purposes.
Fourthly, planning is incomplete without consideration of superannuation death benefits, reversionary pensions and other wealth vehicles.
Superannuation does not pass in accordance with your Will. Further, if you are an appointor of a Family Trust, the assets in the Trust do not pass into your Estate. No Succession Planning is complete without a full analysis of asset holding, legal structures and consideration of what additional protections are necessary.
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