Estate Planning Myths Series: Nominal gifts prevent Estate claims – or do they?

“If I leave someone $1 under my Will, then they can’t make a claim against my Estate”.  This is a common misconception that is often encountered in the estate planning process for clients who wish to take all possible steps to ensure that a claim won’t be made against their deceased estate.

The Succession Act 1981 (Qld) provides, at Part 4, that the Court may consider an application made by a spouse, child (including stepchild or adopted child) or dependent where the deceased has not made adequate provision from the Estate for the claimant.  The Court will consider factors such as:-

  • The extent to which the claimant was being maintained and/or supported by the deceased;
  • The need for the continuance of such maintenance and/or support; and
  • The circumstances of the claimant and the Estate.

It is therefore not sufficient to leave a nominal gift for a potential beneficiary under your Will.  The Court’s consideration is not based on whether you have made any provision for the beneficiary, but rather that you have made adequate provision for the beneficiary.

If you are anticipating an Estate claim following your death, you should advise your lawyer of your concerns so that all necessary steps can be undertaken in the preparation of your Will and estate planning documents.  It may be appropriate to leave supporting estate planning documents setting out the circumstances under which you made your Will, and why you made provision for your beneficiaries (including, where appropriate, excluding beneficiaries).

The unfortunate reality is that there is no fail-safe method to prevent a claim against your Estate.  If you have concerns about a claim against your Estate, we strongly recommend discussing your concerns with our Estate Planning team to make sure that all appropriate steps are undertaken to ensure that your Estate Planning instruments are appropriately drafted to address and possibly pre-empt a potential claim.

Our Estate Planning team can be contacted on 07 5574 3560 or via email to caitlin@nautiluslaw.com.au.

Launch of the Nautilus Law Group “Estate Planning Myths” Series

When meeting with new clients for Estate Planning matters, we often encounter some interesting myths and misconceptions about the law and processes involved with Estate Planning.

Estate Planning and administration in Queensland is governed by the Succession Act 1981.  Documents drafted during estate planning can include a Will, a Power of Attorney for Finance and/or Personal/Health matters, and an Advance Health Directive (plus any other supporting documentation recommended by your lawyer).

Estate Planning can be a complex process, and the advice given to each client is individually tailored to their circumstances – the advice we give one client will often be entirely different to that given to another (as the clients may have different priorities in their Estate Plan, or the law applies to their individual circumstances in a different way).

Due to the misconception that Estate Planning is a “one size fits all” exercise, there are many myths (which often stem from tailored advice being misunderstood as general advice) which are becoming more widely known.

We are pleased to announce the launch of our “Estate Planning Myths” Series of articles on 7 March 2016, through which the lawyers of our Estate Planning team will address the truth behind some of the most common myths and misconceptions we hear.

 

What myths and misconceptions are you talking about?

While there are many Estate Planning myths, we will be addressing those that we most commonly hear.  These include:-

  1. Making a $1 gift to a person in my Will prevents them from making a claim against my Estate
  2. If I don’t make a Will, everything goes to the government
  3. “What’s the point of a Will? My Estate will get eaten up by death duties anyway!”
  4. “I don’t have any assets, so I don’t need a Will”
  5. “Anyone can challenge a Will – it’s not worth the paper it’s written on”
  6. “I don’t need to make a Will because my spouse will automatically receive everything”
  7. “I made my Will years ago and nothing has changed, so I don’t need to do a new one”
  8. “I don’t need a Power of Attorney because my spouse can automatically act”
  9. “My Executor won’t get any compensation for acting as Executor”
  10. “My Executor has to pay for the costs of administration of my Estate”.

 

Have you been told something about a Will, Power of Attorney, or Estate Planning generally, that you are not sure about?

The above indicated topics are those heard most often by our lawyers – but it is not an exhaustive list of the myths that circulate.

Is there something you think we have missed and would like us to reveal the truth of?  If so, please email Caitlin Bampton with your query.  Alternatively, if you would prefer to submit an anonymous query of an Estate Planning myth you have heard, please click here to complete our survey, and we will address the topic in future articles.

Life Interests – Protecting Wealth for your Children from Predators of your Partner

Life Interests – Protecting Wealth for your Children from Predators of your Partner

Protecting Wealth for your ChildrenProtecting Wealth for your Children from Predators of your Partner.

A successful estate plan is a coming together of a number of strategies and tools aimed to achieve your goals for the distribution of your estate, while addressing any prevalent issues, such as protection of the assets, family breakdowns and taxation consequences.

A life interest, in the context of estate planning, is a form of Testamentary Trust where the Testator grants an individual (in most cases the surviving spouse), a lifetime benefit from an asset or the income from an asset of the estate of the Testator.

The person to which the life interest is granted, also called the ‘life tenant’, is essentially granted the right to enjoy the asset for their lifetime or until such time as the life tenant stops complying with the terms of the trust. The benefit of a life interest is that when it ends, the remainder of the asset is passed down to the intended beneficiaries of the Testator. Ownership of the asset is held by the intended beneficiaries, and the life tenant is simply granted the benefit of the use of the asset for the duration of their lifetime.

A life interest is flexible in that it can be used to allow the life tenant to access income only, or may include capital and income.

How can a life interest be used as an estate planning tool?

A life interest is an estate planning tool that can be used in a number of situations, the most common of which are situations where couples are in their second or third marriages, often with children from each marriage.

In this situation, couples who have married later in life and have brought assets into a marriage may wish to ensure that they are able to pass their assets to their respective children. In these situations, assets are often kept separate, with the exception of the couple’s primary residence. A life tenancy allows an individual to ensure that their spouse is provided for, for his or her lifetime. Then, once the surviving spouse has passed away, the Testator’s share of the asset is then passed to the intended beneficiaries of the Testator (usually the biological children of the Testator).

As you can see, the life interest is a way of ensuring that the entirety of the Estate of the first spouse to pass away does not pass to the Estate of the surviving spouse. A life interest ensures that the first spouse’s share of the primary residence can still pass through their bloodline to their children, without any sacrifice of standard of living of the surviving spouse.

Another situation where a life interest can be beneficial is where a couple has amassed a sizeable Estate. If, after the passing of their spouse, the surviving spouse re-partners, a life interest will ensure that the assets of the life interest can be used to the benefit of the surviving spouse without becoming a part of the surviving spouse’s Estate – which will protect the asset upon the death of the survivor or on separation from the future partner. The asset is instead preserved for the intended beneficiaries (usually the couple’s children).

How do we grant a life interest?

As stated above, the most common asset of a life interest is the primary residence of the couple. Most couples will hold their primary residence as ‘joint tenants’. Joint tenancy is essentially a type of ownership of property where two or more owners hold the whole of the property jointly with the other owners. This means that each owner has an equal entitlement and interest in the property. The most relevant aspect of joint tenancy is that upon the passing of one joint tenant, the surviving joint tenant (or joint tenants) acquires the deceased joint tenant’s interest in the property automatically. The effect of this is that the interest that belonged to the deceased joint tenant will not form a part of his or her estate.

If you hold your primary residence as joint tenants with your spouse at the time of your passing, your primary residence will then pass to your spouse in its entirety. The whole of that property will then pass to the surviving spouse’s estate to be distributed in accordance with his or her Will, which can be undesirable in circumstances where your spouse remarries or where each spouse has children from a previous relationship.

In order to create a life interest, therefore, it is often necessary to ‘sever’ the joint tenancy and causes spouses to hold the interest in their property as ‘tenants in common’.  The difference between tenants in common and joint tenancy is that, should a tenant in common pass away, the share of the property owned by the deceased spouse passes in accordance with the provisions of the Will of the deceased tenant in common. Shares in property owned as tenants in common can be transferred independently of each other.

Tenants in common allows a spouse to create a life interest to the benefit of the surviving spouse over their share of the property, while their spouse still owns the remaining share. Then once the life tenant has died, the property passes half in accordance with the first spouse’s estate, and half in accordance with the second spouse’s estate, to their intended beneficiaries.

If you think that a life interest may be beneficial to your circumstance, or you would like some information about life interests and how they work, please do not hesitate to contact us to discuss this further. We are able to assist you to incorporate life interests into your estate planning, and we are also able to assist you with severance of your joint tenancy if required.

For all questions or further information, 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.

Submitted by:  Katrina E. Brown BA JD ATIA TEP SSA

Leaving an inheritance: I don’t want to give my child anything.

Leaving an inheritance: I don’t want to give my child anything…. is that okay? The answer, generally, is no.  However, there are many strategies which can be implemented today which can significantly limit the opportunity for your child to receive anything from you. 

Clients ask us this question when they have one child who is successful, whereas the other siblings may have substantially less.  Other times where this question arises is where one child has been particularly difficult or distant, and the parents have lost contact or do not wish to be leaving an inheritance to the child for their inappropriate conduct.  We have also seen this question arise in circumstances where a child has children of their own which they do not support, and our clients (being the grandparents) want their estate to pass to the benefit of their grandchildren.

Setting aside the reason for this decision, there are practical solutions – albeit the solutions may not flow directly from your Will.

For example, did  you realise that superannuation does not pass as an estate asset?  When you die, your superannuation is not disposed of by your Will.  Most people do not realise this.  The Superannuation Fund Trustee decides who receives your superannuation benefits.  Some commercial funds, and all self-managed funds, allow you (as the member) to “bind” the Trustee to pay the benefits in a certain manner, but this manner must still comply with the terms of the Superannuation Legislation.  Generally, the superannuation must pass to a spouse, child, dependent or your estate.  There are, therefore, strategies which can be implemented to circumvent your estate. 

Another possible solution is the foundation of a Discretionary Trust to hold your assets.  Essentially, you “gift” your assets to a Trust, and when you pass away the assets do not belong to your estate.  They are disposed of within the terms of the Discretionary Trust.  You can nominate your successor to manage the Trust (referred to as a Trustee and/or Appointor) – and that person (or persons) then determines how the assets are distributed.

Another option, which carries a cost which may be a disincentive to many, is to create “joint tenancy” over property with the preferred beneficiaries – which means that the property passes automatically to the survivor(s) on your passing.  This is definitely not one of my preferred options, but it is an option.

There are many other possibilities, and each circumstance is different.  Therefore, we welcome you to contact the office to discuss the possibilities available to you and your family to reach your estate planning objectives, including, but not limited to, withholding provision to any one or more of your family members.

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

Submitted by:  Katrina E. Brown BA JD ATIA TEP SSA

Ruling From the Grave Requires an Undertaker

There is nothing wrong with ruling from the grave!  But, without an undertaker – your plans may be buried with you!

Are you scratching your head, wondering what in the heck I am trying to say?  Probably – so let me tell you what I am talking about.  Our clients have authorised us to discuss this case, so no confidentiality has been violated in the publishing of this article…here it goes…

Mr Smith (he’s always our favourite when it comes to grave stories) was a wealthy man, with his own ideas on investing money, family and friend relationships, and who could be trusted.  Lawyers, not unexpectedly, was not high on that list!  Mr Smith, bless his heart, loved looking the top of his game – and so employed a number of advisors, to do important things…he just did not tell the various advisors he had others, and he did not share with one advisor what he was doing with another.  Mr Smith, being the important person he was, hired a typist from time to time to record his directions for his various estate matters.

I do not know at this stage he decided lawyers were not to be trusted, but he had purchased a Family Trust Deed in the mid-1990’s from one Law Firm, had it varied by another Law Firm later in the 1990’s and then lodged it with yet another office in the mid 2000’s. He had his first Will drawn in mid the mid 1990’s.  It would appear that in the mid-2000s Mr Smith was advised of the benefits of tax planning through the use of “bucket companies” and so opened a company.  Now, Mr Smith was later in his life, and whilst I am told he had capacity, he certainly had a difficulty understanding what assets he had and where, which was evident especially in the last two decades of his life.

To help this illustrate, we will call Mr Smith’s Family Trust – the Smith Family Trust.  We will call Mr Smith’s Company – Smith Company.  Unfortunately, Mr Smith could not keep these names straight, and he certainly did not take advice on how these vehicles worked because by the time of his death, he had “Directions” to the Executors of his Estate with incredible and bizarre stipulations.

Now, Mr Smith owned his waterfront home in his own name.  He also owned all the shares in Smith Company.  He was the “Apppointor” of the Smith Family Trust (see our Article Page on the discussion of Family Trusts and the use of Appointors).  Within the Smith Family Trust, he had approximately $2M in mixed currencies.  There was a small parcel of shares in the Family Trust as well.  Smith Company’s only asset was unpaid loan accounts due from Smith Family Trust.

Mr Smith left a Will appointing a government department to act as the Executor of his Estate and directed his Executor to:
1.   Transfer his home to “Smith Company Trust” – no such entity exists;
2.   Required that his home be held for over 40 years, with stipulations such as the type of paint that could be used on the walls and a complete restriction on the keeping of animals or hanging of pictures, a demand that the home be occupied at all times – and other useful requirements (yes, I am being sarcastic – as none of his beneficiaries actually want to reside on the Gold Coast);
3.    Demanded that all money in the Estate (and presumably in the Trust) be invested in New Zealand currency or Australian Currency, with newspaper clippings of when the currency exchanges could best be achieved; and
4.   Provided strict limitations on the types of distributions possible from the Estate and Trust (such as no capital for over 40 years!).

Mr Smith, just to be thorough, over the years had written a number of “Directions” to the Executors and/or Trustees of the Smith Company Trust (remember, it doesn’t exist – it is the Smith Company or Smith Family Trust…so go figure, which was he referring to?!).  In the last valid Deed, he completely rewrote the entire Smith Family Trust…permitting only five beneficiaries of the Trust.  The the following years, however, he distributed income from the Trust to Smith Company – even though the Smith Company was not a beneficiary as a result of his Deed.  (Quite a problem when he did not inform the various accountants, that another of the accountants had varied his Deed, whilst another created a new beneficiary to distribute funds to.)  Then, the fun really started, because he strated to write “Directions” appointing different people to do different things after his death – but again, with no communication – who knows what was a wish and what was a proper direction by Deed.  Without boring you, it turned into a mess.

The only thing that was consistent between his last valid Will and the last valid Deed, was that he had nominated his sole child and the child’s children as equal beneficiaries of his Will and Trust.

Now, for whatever reason, his list of nominees to work on the Will and Trust remained a long list in his planning.  Over the year following his death, and over $125,000 in legal costs (charged by the Executor and the various people competing to have control over the structures — IMPORTANTLY, none of which were the beneficiaries who had been left out by Mr Smith in terms having any control, even though they were the beneficiaries) – the Court found in favour of our clients and passed the Estate and Trust over to the beneficiaries to with as they wish.  So how were these costs incurred, well the Executors contacted the various accountants and house keeper nominated by Mr Smith and asked if they wanted to act, then the Executors engaged in a costly (and unnecessary, benefitting only themselves) investigation of what they should do to “help” these four beneficiaries – whilst refusing to relinquish control to the four beneficiaries and/or make any distributions to the four beneficiaries.

Do you want to know the funniest part of this story (if there is one)…Mr Smith’s neighbor, oddly enough, is a client of mine.  On the eve of the hearing in this case, it dawned on me, that my client had told me about Mr Smith a few years earlier and had told him to come see me – but he had told her he didn’t trust lawyers, and never came.  Had he come, I would have fixed his Estate and Trust and ensured the total wastage of over $125,000 by the Executor and their merry crew of advisors would not have resulted, but instead of a proper estate plan, with legal tax planning and asset structuring protocols would have been implemented.

So, what’s the lesson here – well, to go through them all, I need a few more Articles posts! However, to be brief – DON’T WRITE YOUR OWN LEGAL DOCUMENTS!!!!!! Okay, let’s say you have an estate of a few thousand dollars – go ahead, write your own, you aren’t losing much. But if you have an estate larger than $100,000 or if you have minor children – GET YOURSELF AN UNDERTAKER who can write a proper Will and help you actually achieve what you wanted from the outset.   If you want to rule from the grave, and I fully support the idea, do it with designs that won’t have you rolling over in your grave!

Submitted by Katrina E Brown BA JD ATIA TEP SSA
katrina@nautiluslaw.com.au