A Will is a legal document setting out how a person wants his/her assets to be distributed on death. Anyone over the age of 18 can make a Will provided they have capacity. A person will have the necessary capacity if they:
- know what a Will is;
- know in general terms the amount and type of property they are disposing of; and
- understand the moral claims to which he/she should give effect when deciding to whom to leave their property.
A Will maker must also know and approve of the contents of their Will.
Raising and caring for children is challenging at the best of times. For parents with a disabled child there is the added concern to ensure the child is cared for after the death of both parents. How can parents provide financial security for a disabled child after the death of both parents?
A well drawn Will can incorporate a Special Disability Trust to take effect on the death of the surviving parent. Special Disability Trusts were created by the Federal Government in 2006 to allow parents and other family members to provide assets for a disabled person with a severe disability, without affecting the disabled person’s entitlement to the disability support pension.
Summary - Capital Gains Tax (CGT) was introduced on 20 September 1985 and is sometimes described as a “back door death duty”. Is this so?
Death is not a chargeable event and a beneficiary inherits the deceased’s cost base i.e. the price the deceased paid for the asset. If the asset was purchased prior to 20 September 1985, the cost base is the open market value of the property at the date of death. Thus, any accrued gain is ignored due to the uplift in value. Contrast, where an asset is acquired post 20 September 1985; here the cost base is the deceased’s purchase price. Any gain is rolled over on death and CGT will only be payable if and when the beneficiary disposes of the asset.
Summary - The importance of estate planning in an ageing society.
A recent report by The Alzheimer’s Association on the impact of dementia on society makes sobering reading. The report shows that by 2050 approximately 303,500 people in NSW will have the condition (at present approximately 95,000 people in NSW have it). Another concerning statistic revealed by the report is that only 55% of Australian have a Will, with an even smaller proportion of Australians having recorded their wishes regarding the management of their financial and health and lifestyle affairs, if they lack capacity to manage them themselves.
Summary - Attempting to control assets beyond the grave can fall foul of family provision laws.
Testamentary discretionary trusts are becoming increasingly popular as a means of estate planning, refer to our article, “Testamentary Discretionary Trusts. What are they and do you need one?”. They have a number of benefits. First, they allow the testator a measure of control over his/her assets after death. Secondly, because the trustee of a discretionary trust has control over the distributions, benefits can be conferred in a tax efficient manner.
On the other hand, testamentary discretionary trusts can also fall foul of the family provision laws because the establishment of the testamentary discretionary trust may mean that a family provision claimant is not left with adequate provision with the effect that he/she can apply to the Court for further provision. That may mean that assets, intended to be held in a testamentary discretionary trust, might be diverted to satisfy a family provision claim.
Summary - The tax and asset protection advantages of Testamentary Discretionary Trusts.
Testamentary discretionary trusts can be of value for taxation and asset protection purposes.
A testamentary trust is merely a trust created under a Will and only takes effect on death (as opposed to one created during life called an ”Inter Vivos Trust”). A testamentary “discretionary” trust is a trust created under a Will where the trustee can exercise discretion in the payment of income and capital of the trust to the beneficiaries. In many ways this type of trust operates in the same manner as a discretionary family trust.
The advantages of a testamentary discretionary trust stem from the trust structure where control is separated from ownership.
Summary – A statutory will can be a useful method of ensuring that a person’s testamentary intentions can be fulfilled even if that person has lost capacity to make a will.
If a person lacks capacity to make a new will or amend an exisiting will, what can his/her relatives or friends do to ensure the person’s known or reasonably likely wishes are fulfilled? While this question might seem a little obscure, it is a problem which often arises for relatives or friends of a person who does not have capacity. The obvious example is: “What would Aunty Ethel wish to happen to her house if she had a Will?”
Richard d'Apice - Head of Private Clients practice group
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