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.

 

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.

Inheritance received FOUR YEARS after separation available for splitting with former spouse!

In the matter of Calvin & McTier [2017] FamCAFC 125 (12 July 2017), the Full Court heard an appeal by a husband who argued that an inheritance received FOUR years after separation should not be included in the property to be divided.  The Full Court held that the property to be divided in a matrimonial matter is the property held by the parties at the date of HEARING, not date of SEPARATION.

The husband’s counsel submitted a number of legal arguments to defeat the inclusion of the inheritance, including the proposition that if the inheritance was to be counted – the later acquired inheritance should be subject to a separate finding as to division (in that case, the inheritance equated 32% of the property pool, which the trial court awarded 65% to husband, and 35% to wife).  The Full Court did not agree.  The Full Court determined that a trial court has discretion to make decisions as to the whole of the assets of the parties, including assets acquired long after separation. To make matters worse, the husband was left to pay the parties’ costs.

The lesson here is that if your beneficiaries are separated, but have not resolved matters by a binding financial agreement or court orders (far preferred because of the finality), then you should be revisiting your estate planning and contemplating proper testamentary trust structures with adequate appointor and guardian provisions.

Also, if you have separated, but believe the cost of making a binding financial agreement and/or seeking court orders is “too hard” or “not worth the expense”, think again.  It is far better to divide what is your marital pool, than risk dividing what is your later accumulated wealth.  Whilst adjustments and contribution weighting may allow for a factor which compensates for your later accumulated wealth, you most likely will lose part of that accumulated wealth.

Life is a gamble, sometimes you win the gamble.

If you aren’t up for the gamble, we welcome you to contact one of the estate planning and/or family lawyers at Nautilus Law Group.  Please free to contact Katrina Brown on (07) 5574 3560 or by email.

Estate Planning Myths Series: “I made my Will years ago – I don’t need to do a new one”

You drafted a Will years ago – it’s pretty basic, but it gives everything to your spouse, or, if your spouse doesn’t survive, then everything goes to your children. So, if the content of the Will applies, what is the point of doing a new Will that sets out the same wishes?

Many people see the updating of a Will as an unnecessary and costly exercise, particularly when the new Will contains the same directions as the prior Will.

Although we certainly understand the frustration with the process, there are three important reasons to ensure your Will is reviewed and updated regularly.

Firstly – a regular review of your Will is critical

There have been recent cases in Queensland that indicate that if a challenge is made against the Estate of a deceased person, and the Estate is being administered by a Will that was not recently made or reviewed, the Courts often question whether the wishes of the deceased at their date of death were the same as those contained in the Will.

There is good reason for this. We regularly hear “I’ve been meaning to update my Will for months now, especially since this happened” – life is busy, and updating a Will falls a long way down the to-do list for most people.

However, it is important to make time for the review process – attending on your solicitor to review the Will, make any alterations, or confirm your wishes can clarify your intentions for the administration of your Estate and potentially prevent an Estate challenge. There is no defined review period, however we recommend reviewing your documents with your solicitor at least every three years.

Secondly – legislation and case law changes regularly – your documents need to change with it

Legislation and Case Law in each State is constantly evolving, meaning that the way your Will is interpreted or effected may change over time.

It is important to review, and confirm or vary, your Estate planning documents with your solicitor regularly to ensure that there are no material changes to your Estate plan that result from changes in law.

Finally – has your Will been voided or revoked?

While a regular review of your Estate planning documents is important, there are certain circumstances which will void your Will – therefore, review is critical should any such occasion occur.

Marriage, for example, will revoke a Will. Unless your Will is made in contemplation of your marriage to your partner, the act of marrying will invalidate the Will.

Similarly, divorce or annulment will also revoke your Will (unless a contrary intention is specifically indicated).

It is also important to review your Will as the circumstances of yourself, your executors or your beneficiaries change – if you, your executors or your beneficiaries become subject to bankruptcy or family law proceedings, it is important to review your Estate plan to ensure that it is still appropriate and, where necessary, that appropriate protective measures are set in place.

If you need to review your Estate plan, we welcome you to contact our Estate Planning Team on 07 5574 3560 or via email.

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: When I die, a percentage of my estate is paid to the government as a “death tax”

We often encounter the misconception that when you die, a set percentage of your estate is paid as a “death tax”.

The good news is that “death tax” was abolished in Australia more than 40 years ago.

There are, nonetheless, taxes and charges borne by the executor or administrator of deceased estates, notwithstanding that the “death tax” was abolished.  This article considers a number of such examples.

COURT FEES:  If the estate obtains a grant of probate, the government imposes registration fees according to Court rates.

ESTATE INCOME TAX:  Tax may be payable on certain income or capital transactions which occur as a consequence of a person’s death.  Whilst “death” is not a taxable event, the disposal of assets by the estate and the receiving of income during the administration of the estate, gives rise to potential tax assessable circumstances.  The tax may be borne by the beneficiaries who become “specifically entitled” to the benefit of the income arising, or the tax may be held by the executor and payable from the estate proceeds.

ADJUSTMENTS FOR SOLE PROPRIETORS:  If an estate has a business, and stock or depreciation calculations must be adjusted at death as a consequence of the deceased trading as a sole proprietor or partner, then there may be a “tax” which arises to the extent of the adjusted values.

SUPERANNUATION DEATH BENEFITS PAID TO NON-TAX DEPENDANTS:  If superannuation death benefits are paid to non-tax dependants, then a tax case arise in respect to the taxable elements.  The theory here is that the concessional tax treatment attaches to the member of the superannuation fund, and not to his/her estate beneficiaries.

CAPITAL GAINS GENERALLY:  The taxation of capital gains in a deceased estate is complicated, but it can generally be said that if an asset with a capital gain passes to a beneficiary, the tax on the disposal (whenever that may be) by the beneficiary is borne by the beneficiary.  In other words, there is no tax on the capital gain on the distribution of the capital asset to the beneficiary.  However, when the beneficiary disposes of the capital asset, the capital gains will then become assessable income to the beneficiary.  If the capital asset was acquired by the deceased prior to 20 September 1985, the beneficiary will be assessed on the capital gain between the date of death and the disposal by the beneficiary.  If the capital asset was acquired by the deceased after 20 September 1985, and the asset was not a main residence (or a residence qualifying for exceptional treatment), then the beneficiary will be assessed on the capital gain between the cost base of the deceased (the purchase price, plus other allowed costs which have been expended since purchase to maintain and hold the asset) and the proceeds of sale received by the beneficiary.  There are tax concessions and exemptions which apply in limited circumstances, depending on the nature and use of the asset; however, “death” is not the triggering event for the tax on such capital assets.

SUMMARY:  Whilst there is no “death tax” per se, executors and beneficiaries alike are well advised to seek the advice of a tax lawyer or accountant well versed in taxation of deceased estates.  There are appropriate strategies to ensure beneficiaries are not subject to excessive taxation.

We welcome you to contact our Estate Planning Team, on 07 5574 3560 or via email to discuss your questions in respect to probate, estate administration and taxation of deceased estates.