21 Mar 2018

Unless you have discovered the secret of immortality, you are going to need a will at some time. Estate planning is an essential, but all too often neglected part of life. Without a will, your family may end up in a bitter and costly legal dispute over your estate. Without a good and carefully considered estate plan, when the time comes, your home, business and investments may not only end up in the wrong hands, but may be the subject of a dispute between family members, business partners or unconsidered beneficiaries. The legal costs of these disputes are normally paid from your estate and may substantially diminish the value of your estate which will reduce the amount going to your beneficiaries.

What different types of wills are available?

Simple Wills
For some people, a simple will may be suitable. Unfortunately however this is becoming a rare event. These wills generally only suit will makers with limited assets who are single, in a first marriage or de facto relationship with children from that relationship only and who have a harmonious family. The will is usually unsuitable for will makers with blended families and/or who have a more significant asset pool.

Complex Wills
A complex will provides a more sophisticated formula for distributing assets. Complex wills can include provisions such as a right of occupation for a beneficiary to occupy the deceased’s residence for his or her lifetime after which the property will be distributed to the will maker’s other beneficiaries.
If a will maker has children from a prior relationship or children from more than one relationship, special provisions may need to be included in the will to provide for each child. For many people, their financial, business and personal affairs are much more complicated than they were 20 years ago. Issues such as superannuation, trusts, control of businesses, capital gains tax, claims by beneficiaries, second marriages means that a simple will just won’t produce the best result and special provisions may be needed in the will to deal with these matters.
Sometimes assets you think are yours are not really ‘yours’ at all (for example, assets held in a discretionary trust or company structure are controlled rather than owned).
As suggested by their name, these wills are complex and require careful drafting to cover a number of contingencies and to ensure that adverse or unintentional outcomes do not arise.

Testamentary Discretionary Trust Wills
Wills which offer beneficiaries testamentary discretionary trusts are more sophisticated than the simple or complex wills discussed above. The testamentary trusts created under the will lie dormant until the death of the will maker. At that stage, generally the beneficiary will be able to choose whether to take their share of the estate as an outright gift or whether to use their own testamentary trust as a way to receive their share of the estate.

The advantages of testamentary discretionary trusts:

  • Tax Benefits and Flexibility
    A testamentary trust offers tax benefits because it allows the trustee to distribute the income of the trust to various individuals and their related entities in their discretion, allowing flexibility and taking advantage of beneficiaries differing tax rates (also known as income splitting and streaming).
    A testamentary trust can be used to fund the education of minors and other costs of raising children quite tax effectively as they are treated as adult tax payers.
    By way of comparison if your estate was to pass to your beneficiaries personally all income earned on the assets would be taxed in their hands at their respective marginal tax rates with no such flexibility in the distribution of income.
  • Asset Protection
    Creditors of a beneficiary find it more difficult to claim against assets held in the testamentary trust. Contrast this with assets inherited by beneficiaries under a standard will where they receive the assets personally. In that instance the creditors would be able to claim against those assets personally held by the beneficiary.
    In the case of the relationship breakdown of a beneficiary, testamentary trusts may also provide some protection against inherited assets held in the trust (where the separation of assets between the couple is concerned).

Mutual Wills
A mutual will is a legally binding contract entered into by you and your spouse. The purpose of a mutual will is to ensure that when one of you dies, your preferred beneficiaries are provided for in accordance with your wishes by your surviving spouse. Mutual wills generally prevent your spouse from changing certain provisions of their will.
Mutual wills can be advantageous in blended family situations, however they also have disadvantages as they ‘lock’ your Wills and bind your spouse to an agreed distribution of your estate after your death. This can increase the risk of challenge to you or your spouse’s will in the future. If you are considering using mutual wills, you should seek the advice of a solicitor first to determine whether a mutual will is right for you.

All Needs Protective Trusts and Special Disability Trusts in Wills
These types of trusts are suitable when a person is vulnerable as sometimes it is not appropriate to allow a person control over their share of the estate. Beneficiaries who may be suitable for you to create these types of trusts for, include:

  • A disabled beneficiary;
  • A beneficiary who might be vulnerable to the negative influence of others; or
  • A beneficiary who has problems with gambling or drug use.

These types of trusts in wills allow the will maker to appoint a trustee to manage the vulnerable beneficiary’s share of the estate. This means that the vulnerable beneficiary benefits from the estate but that their share of the estate is protected. Special disability trusts also have taxation and Centrelink benefits for beneficiaries of these trusts.

A properly drafted will is essential to providing a seamless transition of wealth to your intended beneficiaries. A will is a legal instrument and there are many technical laws that govern its validity and interpretation. Before drafting your will, you need to consider the legality of conditions placed on gifts, tax and transfer duty implications and concessions, the impact of marriage and divorce, social security implications and the effect of law in other jurisdictions. These kinds of issues must be accounted for. A will should be prepared by a solicitor who is experienced in Estate Planning. If you wouldn’t change the brakes on your car because you’re not a mechanic, why would you draft your own will or have a solicitor without appropriate experience draft a will?

An up-to-date will is not a luxury, it is an absolute necessity and our experienced estate planning solicitors at HHG Legal Group can guide you through the legal minefield of wills and estate planning.

This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office at reception@hhg.com.au or call us on 1800 609 945.

LUCY FERREIRA | Digital PDF coming soon

 

 

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