Estate Planning Myths Series: “Is an Executor paid for dealing with an Estate?”

Estate Planning Myths Series: “Is an Executor paid for dealing with an Estate?”


The duties and responsibilities of acting as the Executor of a deceased Estate can be onerous and time consuming; therefore, if appointing a person to act on your behalf, you should consider whether any provision should be made for such person to compensate them for taking on the role.

Under the Succession Act 1981 (Qld) (the Act), a person acting as the Executor of the Estate is entitled to receive a just and reasonable commission for their attendances in acting as the Executor of your Estate, provided such commission is authorised by the Will, authorised by the Court (in accordance with section 68 of the Act ) or agreed by all beneficiaries of the Estate. In the event such payment is authorised, it would be paid from the assets of the Estate prior to distribution.

However, depending on the value of the Estate, this is something that you may wish to specifically address in your Will; whether to authorise or prohibit such payment, or to make alternative provision.

For example, as a commission payment is generally paid as a percentage of the net value of the Estate, if the value of your Estate is significant, the payment of an Executor’s commission can be a large sum and may significantly reduce the value of your Estate (and, in the event your Executor is also a beneficiary of your Estate, could result in a disproportionate distribution to beneficiaries). This may be considered particularly unreasonable if the attendances by the Executor in administering the Estate have been minimal in comparison to the amount of compensation received by way of commission.

In order to avoid the payment of a percentage of your Estate as commission, or payment of a disproportionate sum, it is also possible to include a clause in your Will directing that your Executor is authorised to be paid for their attendances in administering your Estate at an hourly rate (set by you – such at a specified hourly rate, or a rate equivalent payable to bookkeepers in your local area at the date of your death).

If you wish to review your Will to ensure your Executor is appropriately remunerated for acting in the administration of your Estate, please contact our team on 07 5574 3560 or via email to info@nautiluslaw.com.au.

 

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Estate Planning Myths Series: “I don’t need to make a Will because my spouse will automatically receive everything”

Estate Planning Myths Series: “I don’t need to make a Will because my spouse will automatically receive everything”

In the circumstance of a person dying without a Will, they are said to die intestate; therefore, the Estate is administered in accordance with the rules of intestacy as directed by the Succession Act 1981 (Qld) (the Act) (applicable to Queensland Estates only – different provisions apply in other states and territories).

The assets your spouse automatically receives

The intestate Estate is dealt with in accordance with the rules of intestacy; however, such administration is limited to the assets forming part of the Estate. Assets falling outside of the Estate may be dealt with differently.

For example, assets held as by you as joint tenants with your spouse (or another person) will automatically transfer to the survivor upon your death, in accordance with the principles of survivorship. In this instance, the asset falls outside of the Estate and is not subject to the rules of intestacy. However, if the asset is held by you you’re your spouse (or another person) as tenants in common, your interest forms part of the Estate and is dealt with as part of the Estate administration.

Further, non-Estate assets (such as superannuation and trust interests) are subject to distribution by the Trustee of the relevant Fund or Trust and, therefore, may also be distributed outside of the Estate.

Distribution on intestacy

In relation to the assets forming part of the Estate, section 35 of the Act provides that an intestate Estate is to be distributed to the persons entitled to take an interest in accordance with Schedule 2 of the Act.

In the event that you are survived by a spouse (and only one spouse), and you do not have any children, the spouse will be entitled to receive the whole Estate.

In the event that you are survived by a spouse (and only one spouse) and you have children, then your spouse is entitled to receive the sum of $150,000 and the household chattels. The balance of the Estate is then distributed as follows:

  1. If there is only one child, ½ of the residuary Estate is distributed to the child and the balance is distributed to the spouse; and
  2. If there is more than one child, 1/3 of the residuary Estate is distributed to the spouse and the balance is distributed equally between the children.

In order to ensure that your Estate is distributed as you intend (rather than in accordance with legislation, as currently set out above but is subject to change), the best practice is to ensure that you have a Will in place directing the distribution of your Estate.

If you would like to discuss implementing an Estate Plan, please contact our team on 07 5574 3560 or info@nautiluslaw.com.au.

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Estate Planning Myths Series: “My Executor has to pay the costs of administration of my Estate”

Following your death, your Executor is responsible for the administration of your Estate; this includes calling in the assets of your Estate, attending to payment of debts and liabilities, and distributing the net proceeds to the beneficiaries in accordance with your Will (subject to any direction of the Court).

There are various debts that must be considered in Estate administration:

Funeral expenses

Funeral expenses may be paid directly from the deceased’s bank accounts upon presentation of a certified copy of the Will and the funeral account to the deceased’s financial institution (however, this will result in freezing the accounts).

Costs of administration of the Estate

The Executor is authorised to engage professionals to complete the necessary works to administer the Estate. In doing so, the Executor personally engages accountants, lawyers, agents and other professionals, and in doing so the Executor is generally entitled to a full right of indemnity from the Estate in relation to the reimbursement of such properly incurred costs as an administration expense.

Estate debts

Aside from funeral, testamentary and administration expenses of the Estate (which take priority to other Estate debts in accordance with the Succession Act 1981 (Qld)), the remaining debts of the deceased and Estate must be paid prior to distribution of the Estate to the beneficiaries.

The Executor is not personally liable for the payment of such expenses, but rather they are borne by the Estate. In the event that the Estate does not have sufficient assets to attend to payment of all such debts, the Estate may become insolvent and be declared bankrupt.

The Executor becomes personally responsible for payment of Estate debts only in the circumstance where administration of the Estate has been completed without the Executor having given proper statutory notice to potential claimants.

If you would like to discuss the administration of an Estate, please contact our team on 07 5574 3560 or via email to info@nautiluslaw.com.au.

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.

Estate Planning Myths Series: “I don’t have any assets, so I don’t need a Will”

It is a common phrase heard, particularly from young adults – “I don’t have any assets, so I don’t need a Will”.

Young adults and non-homeowners are often of the opinion that, because they do not have “significant” assets – they do not need a Will.  This article considers two of the most basic reasons to have a Will.

Firstly, everyone owns something – and the majority of young people have potentially significant superannuation death benefits.

Remember opening a “Dollarmites Club” account with Commonwealth Bank when you were in early primary school (or opening one for your children)?  At a young age you started to accumulate assets.

In addition to many young adults concluding that their assets are not significant enough to necessitate a Will, there is generally one asset that they do not consider – superannuation death benefit proceeds.

Superannuation is held by the Trustee of your superannuation fund(s) on your behalf.  Although you are beneficially entitled to the funds, they are not owned by you (but rather held for you).  Therefore, the Trustee can pay the superannuation death benefits as the Trustee determines – which may or may not be in keeping with your wishes.

If you die having a superannuation member interest, the Trustee is obligated to pay the death benefit to any one or more of your “dependents” or your legal personal representative – unless you have made a Binding Death Benefit Nomination (and the Nomination names a lawful payment direction).

You may have significant superannuation death benefits, and have no idea!  We discover this quite often, when we ask clients to provide copies of their superannuation statements.

For example, one standard cover by Sunsuper provides a combined total and disability cover for a 30 year old in the sum of $250,000, which decreases at age 60 to $25,000. Also, many industry funds have basic insurance coverage that is taken out on joining the superannuation fund.

In a Will, directions can be made in respect to your wishes on the payment of the superannuation death benefits.  The Trustee may have regard to your wishes contained in your Will, but is not bound to act in accordance with your Will. However, your Will is an excellent starting point for the Trustee to consider, in assessing how the superannuation death benefits should be paid.  Of course, making and maintaining a valid Binding Death Benefit Nomination in the form required of the Trustee is the best approach to ensuring the benefits are paid to the correct beneficiary.

You do need to be aware, however, that the Trustee is limited to who it can pay – including generally your parents, your children, your partner or spouse and your dependents and interdependents (in general terms – people whom you live with or whom rely on you for some level of financial assistance, or vice versa).  Excepting in respect to any one or more of these, the Trustee must pay the death benefit to the Legal Personal Representative of your Estate.

Assuming the death benefits are paid to the Legal Personal Representative of your Estate, if you have no Will – the superannuation death benefit will be distributed in accordance with the intestacy rules set out in your state of residency’s intestacy rules (see, for example, the Succession Act 1981 (Qld)).  But, you may not want to leave your death benefit to those who would take intestate, so it pays to draw a Will – regardless of the value you believe your Estate to be worth.

Secondly, if you do not have a Will, there is a question over who controls your Estate.

A properly drawn Will appoints an executor, which person (or people) has the authority to administer your Estate.

In the event that you die without a Will, the only way that a person can be granted authority to deal with your estate (in a way that is recognised by financial institutions and asset holders) is for that person to obtain a grant of Letters of Administration from the Supreme Court.

The cost and time involved in obtaining the grant of Letters of Administration is generally greater than that of obtaining Probate of a Will.

If you would like to speak to our estate planning team about drawing a Will, please contact our office on 07 5574 3560 or via email.

Estate Planning Myths Series: “If I die without a Will, everything goes to the government”

When we meet with clients, we often ask why they have decided to come to see us – often they are looking to clearly define an estate distribution for blended families to make sure that everyone is provided for – other times our client is simply looking to put in place a Will that establishes a level of protection for their beneficiaries’ inheritance.  For those who haven’t been through an estate planning exercise before, we often hear that “I want to make my Will because I don’t want everything to go to the government”.

“The government” is a broad term, and the assumption we generally encounter is that, if a person hasn’t left a Will naming a beneficiary of their estate, the residue of the estate (being the balance after the payment of funeral costs, debts and testamentary expenses) will simply be distributed to the government, without consideration of the deceased’s family.

In reality, this is not the case. While there are circumstances under which “the government” can receive payments under a Will, these are generally limited to estate debts and taxes – such as capital gains tax and income tax for gains realised and income received by the deceased during their lifetime and in the course of administering their estate.  Aside from this, there are very limited circumstances in which the government will become the beneficiary of your estate.

A person who dies without a Will, or who leaves a Will which does not effectively dispose of their estate, is said to die “intestate”.  The Succession Act 1981 (Qld), at Part 3, provides the direction for the distribution of an estate of an intestate person.  The rules of intestacy consider the persons relationship to the deceased, and the deceased’s relationship circumstances at their date of death.

For example, as set out at Schedule 2 of the Succession Act, if a married person dies leaving two children, the spouse of the deceased is entitled to receive $150,000 plus the household chattels, with the balance of the estate divided with 1/3 distributed to the spouse and 2/3 distributed equally to the children of the deceased.

If a single person with no children dies, but is survived by one or both of their parents, the parents (or the survivor of them) are entitled to the entire rest and residue of the estate in equal shares.

Only in the circumstance where the deceased is not survived by a spouse, child, parent, brother, sister, grandparent, aunt, uncle, niece, nephew or cousin (defined as next of kin at section 35), does the government become entitled to the residue of the estate.

Whilst the rules of intestacy set out in the Succession Act may allay the concern that the government will take the residue of your estate upon your death, this is not to say that you do not need to make a Will.

Intestacy can create a much more complex estate administration process than administration with a Will.  Administration of an estate pursuant to a Will often requires the executor to obtain a grant of Probate; if the Will has been correctly prepared and executed, this application is generally a straightforward process wherein the executors advertise and make application for the grant from the Court.  The requirement for the issue of a grant of probate will sometimes be waived by financial institutions and other asset holders, if the value of the asset held by them is a low value asset and therefore the expense and delay of obtaining probate is not justified.

However, in the case of intestacy, letters of administration from the Court must be obtained – otherwise, asset holders are unable to ascertain that the person that they are dealing with has the proper authority to administer the estate.  As this process must be completed, and there are various addition documents that must be prepared and executed, the application for letters of administration can be a costly and time consuming exercise.

Whilst the myth that the government will receive your estate if you don’t have a Will on your death is false, that is not to say that you don’t need a Will.  A properly drafted Will is the best method of ensuring your estate is administered in accordance with your wishes, that costs are minimised and that beneficiaries receive the gift you intend.

If you have any questions regarding making a Will, or the distribution of an estate where a Will has not been left, please contact Caitlin Bampton on 07 5574 3560 or Caitlin@nautiluslaw.com.au.