Estate planning Justine Marquet, Technical Advice Manager
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Estate planning Justine Marquet, Technical Advice Manager
The facts • While 86% say they’ve made a Will • each year thousands of Australians die without a valid Will • While 72% are confident their family would live comfortably • only 28% have worked out how much they’d need • 1 in 3 marriages break up • and 53% of divorces involve children • 100 % of people die !
What is estate planning? • The right funds... • In the right hands... • At the right time
Right funds • Maintain your family’s lifestyle • Pay for special needs eg child’s education • Cancel debts
Right hands • Beneficiary’s creditors • Spouse • Tax Office • Children • Former spouse • Grandchildren • Lawyers • Trust
Right time • Immediate cash needs • Children’s education • Immature beneficiary • When to sell
Who should consider estate planning?
• Estate planning is important to anyone...
• with family or loved ones
• with assets or debts
• with a businessEstate planning in practice • Could I benefit from estate planning? • Does this affect my family? • Can I afford NOT to do some estate planning?
Case Study - The Jamesons
Fred, 45 Freda, 43
Samantha, 3 Sam, 5
9Fred had not planned his estate!
• Fred had a very simple Will (the ‘I Love You Will’)
• Fred had not nominated a beneficiary under his super
fund
• Fred had not worked out how much money his family
would need after his death
• Fred had not appointed a power of attorneyFred’s estate
Fred Insurance Asset Debt
Car $ 25,000 $ 15,000
Super $150,000 $ 50,000
Invest. property $200,000 $175,000
Total $425,000 $190,000
Fred's net position on death = $235,000
Freda has also been left with a $150,000 mortgage
Will $235,000 be enough?The right funds
• Did Fred leave the right funds to:
• repay the family’s debts?
• ensure Freda’s and the children's lifestyle was maintained?
• provide for Sam and Samantha’s future education?The right funds Objectives if Fred dies first Funds needed Eliminate car debt $ 15,000 Eliminate family home debt $ 150,000 Eliminate investment property debt $ 175,000 Provide $50,000 pa* income for 20 years $ 550,925 Provide lump sums $ 100,000 Provide for two children’s education (15 years at $5,000 pa*) $ 94,027 Total needed $1,084,952 * assumed net earning rate of 6.50% has been used to calculate lump sums
The right funds
What’s available $425,000
Shortfall $659,952
$659,952 $150,000
$275,000What are the funding options? • Do nothing • Address the problem now • Address the problem later • A combination
Dying without a valid will
• If you die without leaving a valid will (intestate), State law
provides a set of rules saying how your estate should be
distributed
• The rules vary in each State. Broadly, in NSW your spouse will
receive proceeds of your estate, unless you have children of a
prior relationship
• Formula may not be in accordance with your wishes
• If no relatives can be found, your estate may pass to the
governmentMaking a will • Your will is a legal document which ensures that your assets are distributed according to your wishes • Your will also nominates the executor you have chosen • The executor’s responsibility is to • make funeral arrangements • identify, manage and maintain assets until distribution • pay your debts, do tax returns • arrange distribution of assets to beneficiaries
Your will
• Some issues to consider in making your will include:
• How do you want your assets distributed?
• Who should you appoint as executor?
• Are any of the beneficiaries likely to be sued, under 18 or that have
special needs (eg disability, substance abuse, spendthrift)?
• Are any of the beneficiaries in a de facto relationship or in a volatile
marriage?
• Should you leave a memorandum of wishes about the upbringing of
children for guardians appointed under your will?Financial, medical and lifestyle decisions
• Financial
• Enduring Power of Attorney - continues beyond the principal’s own incapacity
and allows the attorney to continue acting notwithstanding that the principal has
lost his/her mental capacity
• Enduring Power of Attorney cannot be used to make medical or lifestyle decisions
• Medical and Lifestyle
• Enduring Guardianship - a substitute decision-maker who makes lifestyle and
health care decisions should a person lose the capacity to make his/her own
decisions at some time in the futureControl of trusts and companies
• Discretionary Trust
• The Appointor has the right to hire and fire the trustee, ie replace a trustee or
add an additional trustee
• Unit Trust
• Usual practice is trustee of the unit trust can undertake to redeem the units of
deceased unit holder and this right of redemption is usually set out in the deed
• Companies
• Death of a controller of a private company does not necessarily bring the
company to an endChallenges to your will
• Someone who has a relationship with you can make a claim on
your estate when you die if the Court considers you have not
made adequate provision for them
• Strategies for minimising the risk of a successful claim include:
• Identifying potential claimants and making provision for them
• Leave reasons for the distribution of your estate
• Non-estate assets
• eg superannuation distributed via a binding nominationAnother tool for avoiding disputes
• Binding Financial Agreements
• Well worth considering as a financial and estate planning device
• Both parties must have independent legal advice and must
comply strictly with legislative requirements
• Continue to operate despite the incapacity or death of a party to
the agreement and will be binding on the legal personal
representatives of that party's estateMinimise ongoing tax liabilities
• Testamentary trust
• Use of 'testamentary trusts' in wills can achieve significant
savings in capital gains and income tax as a trust structure
• Allows beneficiaries to reduce the level of tax by distributing tax
gains to family members on lower tax rates
• Family trust
• Use of a family trust whereby there are two persons who can
exercise a great deal of control over a family trust, the trustee and
AppointerSuperannuation
• Special definition of ‘dependant’ (SIS Act)
• spouse (includes de facto and same-sex, but not ex-spouse)
• children
• anyone financially dependant on you and people you are in an
interdependency relationship with
• Most adult children will pay a higher rate of tax on super death
benefit - consider distributing other assets to adult children
• Death benefit pensions can only be paid to tax dependant
beneficiariesSuperannuation - binding death benefit nomination
• Binding nomination may offer certainty - trustee must
comply
• Cannot generally be challenged (provided nomination is
valid at the date of death)
• Can be made in favour of dependants or your estate
• Must be renewed every three years, can be changed at any
time
• Not offered by all super/pension fundsSummary
• Important to make/review your will when key life events
happen
• Make and update binding death benefit nominations for
your super fund
• Do you need to use life insurance to adequately provide for
your spouse and children?
• Consider whether the right amounts will go to the right
place/person, at the right timeIMPORTANT INFORMATION The information contained in this document is of a general nature only and does not constitute financial, taxation or legal advice. Before you make any decision in respect of your business you should obtain professional tax or legal advice on your particular needs and financial situation and desired business outcomes. No representation or warranty is made as to the accuracy, timeliness or completeness of this information. The information contained in this document may be rendered inaccurate or wrong due to circumstances beyond our control. AMP Ltd and its subsidiaries take no responsibility for and accept no liability other than required by law for reliance on this document or its contents. AMP may take any steps available to it under law to limit that liability.
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