Estate Planning Myths Series: Anyone can challenge a Will – it’s not worth the paper it’s written on

A Will is one of the most important legal documents you will make and must be tailored in accordance with your individual needs. It sets out your wishes for the distribution of your estate and provides directions as to who is appointed as your executor and how they should manage your estate.

The failure to execute a Will before your death will mean that you die ‘intestate’, leaving your assets to be distributed in accordance with legislative provisions (in Queensland, this is pursuant to the Succession Act 1981 (QLD) (the Act) – other States have similar legislation), which may not be in accordance with your wishes.

Further, a failure to seek professional legal advice to prepare a Will, attempting to draft your own Will, or neglecting to make sufficient provision for your spouse, descendants and dependants may result in a Family Provision Claim against your estate.

What is a Family Provision Claim?

Family Provision Claims are made under Part IV of the Act and are the most common type of challenge to a Will.  The Act provides that whether a person dies testate (having a Will) or intestate (without a Will), the court may, in its discretion, apply such provision as the court thinks fit having regard to the status of the individual making the claim and whether they qualify as a dependant on the deceased.

Who can make a Family Provision Application?

A deceased person’s spouse, child or dependant is entitled to bring a Family Provision Application seeking proper support and maintenance from the estate of the deceased.  Each potential claimant will be considered in detail below.

Spouse:

At law, a person’s spouse is entitled to a distribution from the estate if they are the husband, wife, de-facto partner or a registered partner of the deceased.

Children:

The definition of child under the Act is broad.  Children who may bring a Family Provision Claim include not only the deceased’s natural or legitimate children, but also step-children and adopted children.  Foster children may bring a claim if they can establish that they were wholly or partially dependent on the deceased and were a member of the deceased’s household.

Dependant:

A claimant may also fall within the category of a Dependant, which is defined as “any person who was wholly or substantially maintained or supported … by that deceased person at the time of the person’s death being:

  • a parent of that deceased person; or
  • the parent of a surviving child under the age of 18 years of that deceased person; or
  • a person under the age of 18 years.”

Accordingly, a dependant may be a parent of the deceasd person.

 So – if a Family Provision Claim can be made in any instance, what’s the point in writing a Will?

In the event of a Family Provision Claim, the Will is one of the primary documents upon which a court will rely, as this document sets out the testamentary intentions of the deceased.

While there is no concrete method of preventing a Family Provision Claim being lodged – there are various methods by which the chances of a claim being lodged, or of such a claim being successful, can be decreased.

When a court considers a Family Provision Claim, the deceased’s views will be considered.  However, there is no guarantee that the court will uphold the wishes contained within the Will if the claimant can demonstrate the need for proper support or maintenance.  It is, therefore, paramount to consider every possibility which may arise, and to draft a Will that considers all potential claimants and provides security and protection to ensure your estate is distributed as you intend.

If you are excluding any of the potential claimants from receiving a distribution under the Will, or effecting a distribution that is less than what may be considered by a court to be “proper entitlement”, it is important that you record the reasons for such exclusion or reduction with either a clause included in the Will or alternatively executing a signed statement to be kept with the Will.  There are various supplementary documents which can be prepared by your solicitor setting out the reasons a lesser provision was made for potential claimaints.

If you would like to speak to our estate planning team about drawing a Will or potential Family Provision Claims, please contact our office on 07 5574 3560 or via email at info@nautiluslaw.com.au.

Can I put a direction in my Will that my Beneficiary receives a gift at 25 years of age?

Willmakers often want to set a date for which a minor or young beneficiary receives a gift from their estate.  The most common is to suggest that their child receives their estate at 21 or 25 years of age.  This is, however, not enforceable and the child can demand the whole of the provision at 18 years of age from the estate, unless provisions are written correctly.

In planning for minor or vulnerable beneficiaries, even a simple will (that is a will without a testamentary trust) needs to consider that a beneficiary who has entitlement to an asset (such as the residue of an estate) is entitled to take the provision upon reaching the age of minority – unless a condition prevents the vesting of the estate.

Conditions may include an obligation to survive by a certain date, with the provision that if the child does not survive until such date than an alternate beneficiary takes.  Another condition may be that the child must reach a certain age and obtain a degree or level of training, with a failure of meeting such condition being sufficient to prevent the vesting of the estate (there are limitations in this regard).  Alternatively, the provision can be made for the child out of a testamentary trust, with the child being one of many alternate beneficiaries until a date selected by a trustee.

We recommend that any provision to a minor or young person contain conditions.  There have been many cases called to answer the rights of a person of legal age (18) calling upon the vesting of a provision from an estate.  Proper legal advice can ensure your wishes are considered and upheld – with the obvious benefit being a savings of the estate until the beneficiary is of more suitable age and/or circumstances to inherit.

Nautilus Law Group’s Succession Law Team are trained in conditional planning and can assist you in achieving your wishes for your beneficiaries.  We welcome you to contact Caitlin Bampton, on Caitlin@nautiluslaw.com.au or by telephoning at (07) 5574 3560, to arrange a no-obligation consultation with a member of our team.

Should the use of mobile phones in cars be banned?

Nautilus Law Group refers personal injury matters to GC Law. Gavin Mills, the Practice Director of GC Law and Personal Injury Specialist Lawyer, recently asked, in an article, this very question. We found the question interesting, given lawyers (and most of our clients we suspect), rely heavily on hands free communication in transit. We pose the question to you, and leave it to you to consider whether lobbying for use of mobile phones in cars should be a priority. Given the dangers posed by the distraction of the mobile phones, it goes without saying that a hazard exists – even when the mobile phones are used hands-free. What do you think?

Commentary by GC Law:

“As compensation law experts, we see many clients injured in car accidents as a result of drivers not paying attention while driving and using a mobile phone at the same time.

The risk of an accident while driving and using a mobile device is so high, that most States are now calling for a complete ban on drivers using a mobile device while driving.

There is evidence that talking on a mobile phone hands free and driving should also be banned, because it presents just as great a risk of crashing as holding a phone.

Politically there are movements to amend the road rules to ban all mobile use when driving. Some authorities are also lobbying for in-car technologies to prevent drivers from using a mobile device while driving.

“Localised fields” can be developed to surround a driver restricting incoming and outgoing calls, but the field would need to be automated to ensure that the ban was effective. Some motor vehicle manufacturers are considering this feature as a standard on all models.

It is presently illegal in all states and territories to use a hand held mobile phone while driving. This includes talking, texting, playing games, taking photos or videos and using any other phone functions.

Using a hand held mobile phone is also illegal when your vehicle is stationery but not parked, for example when you’re stopped at a red traffic light.

It is illegal for a Learner or P Plate driver to use a hands free mobile at all.

The most common type of car accidents associated with the use of mobile devices is “running off the road” or “rear end” crashes.

Statistics show that using a mobile phone while driving is so distracting that it increases the risk of having an accident by five times.

Despite the dangers and the illegality, about 25% of Queensland drivers recently surveyed admitted to using their mobile phone on a daily basis to answer or make calls and read text messages, while 14% reported using their hand held mobile phone to send a text message on a daily basis.

Driver distraction is one of the main causes of car accidents estimated to account for approximately one quarter of all car crashes.

At GC Law we are compensation law experts. If you, a family member or a friend has been injured in a car accident, it’s important to obtain legal advice about your rights quickly because strict time limits apply.

For more information, please feel free to call GC Law on 1300 302 388 for a free, no obligation opinion on where you stand.

At GC Law, we’re here to help.”

Tax Awareness for Family Law Settlements Critical

It comes as no surprise that the Tax Office has delivered its TR 2014/5 finding that distributions of property or money from a company as a consequence of Family Court Orders constitute assessable income.  TR 2014/5 does, however, remind practitioners and parties that Tax Contingency Reports must be considered.

Whilst there exists significant roll over reliefs (essentially deferral of capital gains) and stamping exemptions arising as a consequence of Family Law Orders, the question is now answered definitively by the Tax Office that transfers of property or money, from a company structure in satisfaction of a claim to a family law property pool, are taxable.

It has been argued previously by a minority of tax practitioners that the transfers obligated as a consequence of Family Court Orders (section 79 of the Family Law Act 1975) constitute a “discharge of an obligation” by the company. This position, however, was at odds with section 44 of the Income Tax Assessment Act 1936 (ITAA 1936) which otherwise defined a dividend (in other words, assessable income) to be a payment out of profits of a company to a shareholder (or associate of the shareholder) and section 207 of the Income Tax Assessment Act 1997 (ITAA 1997) which deals with the availability of tax offsets (franking credits) in relation to dividends to shareholders (or associates). Certainly, within the context of Division 7A of ITAA 1936, the position has been that a payment, use or guarantee of company assets constitutes a deemed dividend.

In short, the Tax Office has its hand up whenever company assets are distributed or used for other than generating assessable income to the company. The upside of utilising the company as an operating entity is to quarantine (and recycle) profits at a 30% tax rate, until such time as determined reasonable to distribute the profits to shareholders (and/or associates). As confirmed by TR 2014/5 – the breakdown of a relationship does not change this position (reference includes an associate of a shareholder).  Therefore, it is critical for parties to consider not only the equity of the family pool division – but also the tax consequences (and indeed the cash flow funding) of the proposed division.

A common situation arises wherein a husband and wife have conducted their family business through a company, and have retained profits. For this example, let us assume the couple have retained profits of $1,000,000 in the company, with cash in bank at $1,500,000. We shall further assume the company has a net market value (including assets and goodwill) of $5,000,000. Let us also assume the couple hold real estate in a family trust controlled by the couple that is worth $1,500,000. Finally, we assume the couple has a primary residence with a net value of $500,000.

Setting aside the potential for small business concessions and legal tax planning options, if the parties conclude that the wife should receive control of the family trust (valued at $1,500,000) and the family home (valued at $500,000), and a cash payment of $1,000,000 from the company and an asset of the company valued at $500,000 – this is not going to result in a 50/50 after tax outcome to the wife.

In fact, the $1,500,000 benefit from the company will attract tax at the wife’s marginal tax rate (in the ballpark of $650,000!). Whilst the company may be able to frank the payment to the wife, she will nonetheless bear a tax consequence of 16.5% of the franked dividend (in this case it could be in excess of $320,000!).

Therefore, it goes without saying that TR 2014/5 forces tax to be a significant factor in family law negotiations.

Katrina Brown, Senior Lawyer with Nautilus Law Group, authors Tax Contingency Reports for parties seeking definition of the possible tax contingencies factorable in property settlements. Consideration given in the Reports includes availability of franking banks (available for offset against tax payable on assessable income in the hands of a shareholder of associate), capital gains tax roll over reliefs and small business concessions, and funding options for legal entities operated in a family group. Further, it is often the case that non-family related business proprietors are associated with legal entities which are subject to family law proceedings (or threatened to be compromised as a consequence of such proceedings). The Reports, therefore, also have regard to best case outcomes for the non-family business proprietors.

If you are interested in speaking with Katrina Brown regarding Tax Contingency Reports, please feel free to arrange a meeting by our offices on (07) 5574 3560.

We thank you for considering Nautilus Law Group.

 

Superannuation – the forgotten asset of the youth

Superannuation – the forgotten asset of the youth

SuperannuationHave you thought much of your superannuation? If you are young, and you have never seen an Estate Planning Lawyer – count yourself a member of a very large majority. The most common comments we hear are:

  • “I’m only young, I will worry about it later.”
  • ‘I’m not sick or dying, why do I need to do anything?”
  • “I have nothing of value, no house or money, why do I need to see a lawyer?”

People forget they have one asset that can be of significant value – superannuation.  Equally important, they do not consider the devastation they will cause to their family, if they die without leaving directions for their family.

Proper Estate Planning is not only for the elderly or wealthy. Clients often believe that if they do not have real estate, or significant savings or investments, that they do not have anything of value to be distributed in their Estate – but they forget their superannuation has a value, and often times has an attached life insurance benefit.

If you have worked during your lifetime, you will have accumulated superannuation. This is a valuable asset which must be distributed upon your passing. Many superannuation funds also provide life insurance to their members. If your superannuation has life insurance, the Superannuation Trustee may pay the death benefits to your nominated beneficiaries (which may include your spouse, children or dependents or your Estate).  Often times, the Superannuation Trustee pays directly to your Estate. Remember, unless the Superannuation Trustee determines it to be so – your superannuation does not form part of your estate. 

One of our primary recommendations when consideration superannuation planning, is to ensure that our clients have a nominated “binding death nomination” made on their fund – which requires the Superannuation Trustee to pay death benefits to only those intended by our client.  Some superannuation funds do not permit “binding death nominations”, and for those funds we consider a “non-binding nomination.”  In our experience, families who are left to deal with superannuation trustees where no nomination has been made, battle with guilt and grief, and the perception that they are “caring only about the money.”  By simply making the nomination, the family can rely on this showing as a sign of our client’s actual intentions.

As a paralegal in the Estate Team, I have witnessed the nightmare that parents and families go through when they have to deal with the unforseen death of their child and loved one. 

I have worked on a number of similar files over the last year, involving the death of young adults with separated parent.  One of the files involved a young adult who passed away with a large superannuation insurance death benefit.  His mother and father divorced when the child was young. The father was absent from the child’s life and provided little to no financial support to the mother, and did not seek to maintain a relationship with the child. The mother, however, provided extensive support and encouragement for the child through his adult life, often to her own financial detriment, and was a present and influential presence in the child’s life. The child unexpectedly passed away leaving a substantial amount of superannuation.  The mother was tortured in having to prepare sworn statements about the child’s history, which could have readily been avoided if the child had merely nominated her as his binding death nominee.  In the end, the funds were paid to the mother, but not without significant personal devastation.

If the Superannuation Trustee had nominated to pay the funds to the child’s Estate, because he had no Will, the family would have had to apply for probate and the rules of intestacy would have applied, being that the benefit would have been paid 50% to the child’s mother and 50% to the child’s father.  We expect, knowing the history, that the child would have not been agreeable to this.

However, if he had left a Will, at least he would have avoided intestacy, and could have directed the entire benefit to his mother. Fortunately, it did not have to go through this process, because we prevailed at winning the distribution at the Superannuation Trustee level.
Further, the value of leaving your direction, even in a Simple Will, cannot be overstated in terms of helping families overcome the loss and devastation of your passing.

We welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.