A vital step in your Estate Plan, don't underestimate the value in this simple activity. Allows you to look at the whole picture and take action and forward planning to ensure fairness amongst your beneficiaries.
7 MINUTE WISDOM PODCAST #18: Power of Attorneys
It is important to understand the roles and responsbilities of those you choose to have as part of your Estate Planning Team. Power of Attorney, Enduring Power of Attorney, Advanced Health Directive. Understanding these duties and making some thoughtful decisions now regarding your financial and health outcomes will prevent a lot of stress and strain for your loved ones at the time.
7 MINUTE WISDOM PODCAST #13: THE BUSINESS PARTNER FROM HELL
Business partnerships begin with the best of intentions and positive outlook. However, if the partnership breaks down or if one partner suddenly passes, this can often lead to an unqualified beneficiary becoming involved. Effective planning is essential to protect your years of hard work and success.
7 MINUTE WISDOM PODCAST #11: Estate Planning, Not Just A Will
Many people believe an up to date Will is all that is required for their Estate Plan. Realistically a Will is just the start, just the foundation. Tom discusses what else is required even for those who have apparently simple structures.
7 MINUTE WISDOM Podcast #8: The Dear Mary Letter
For those left behind when you are gone. An often very emotional but clear and concise letter to your spouse, children or others offering advice on the financial position, what to do next and who to trust.
Why is Making a Will Expensive?
It’s too expensive!
These are often the famous last words of regular people when advised to seek the services of a lawyer to draft a will. Yet a recent case handed down by the Supreme Court of Queensland highlights exactly why a specialist succession lawyer is a vital part of any estate plan.
Fernando Masci and Elizabeth Masci were married later in life, after previous marriages and each had children of their own. They did not have any children together. Mr Masci died in 2012. Mr and Mrs Masci decided to draft a will together in 2006, on a pre-printed form. In the document, they appointed Mr Masci’s son and Mrs Masci’s daughter as co-executors of the will. The will was short and not very clear, but appeared to give each other the right to reside in the family home until both had died, whereupon the proceeds of the home and other assets would be equally split between the couple’s children.
Problem 1.
Mr Masci’s son, Graham and Mrs Masci’s daughter, Susan, named co-executors of the will, could not agree on how to administer the will. Graham asked for Susan to be removed as executor from the will as part of his application, while Susan asked that they both be removed as executors and a solicitor be appointed as administrator instead.
Problem 2.
Because the will was homemade and it’s intentions not clear, the court was required to make sense of it in order to grant probate. Justice Dalton remarked that: “the drafting of the will in this case is so poor that I wondered whether or not I could sensibly give any effect to it.”
Problem 3.
Was the will executed together by the Masci’s considered a mutual will? A mutual will is when a couple make a certain will on the understanding and expectation that the last person to die will not change their will. In most instances, the agreement is that the assets will pass to the surviving spouse first, then to the beneficiaries. Mutual wills become most tricky when, as in this case, there are children from previous relationships. If the court finds that it was a mutual will, the beneficiaries are afforded some legal protections in the event that the surviving spouse does not honour the mutual will.
The Court’s Findings
Problem 1.
Justice Dalton agreed that it was impossible for Graham and Susan to continue as co-executors and considered whether to remove both as executors and appoint a solicitor to take over the task. However Justice Dalton remarks: “a paid administrator would be a significant imposition on what will remain of the funds of the estate…..I am conscious that even if an unpaid executor is left in charge….they will need to consult lawyers because of the complexity of the problems still to be dealt with, and that legal costs will therefore necessarily be incurred in any event.” Justice Dalton eventually appointed Graham as sole executor. However, the message here is clear: the inability of the executors to agree has and will continue to cost the estate dearly.
Problem 2.
Justice Dalton was required to interpret the will, given it was unclear, in order to grant probate. He agreed to grant probate, after considering the intentions of the will-makers. However there was a great deal of argument over the wording contained in the will. The executors could not agree on what the term “stay in the house” or “handle all monies” meant or how it should be handled. It’s imperative to understand at this point that it is prohibitively expensive to have the court determine what these terms mean, rather than having a specialist succession lawyer draw up wills which clearly deal with these matters.
Problem 3.
Justice Dalton had to answer the question as to whether the will could be construed as a mutual will. The question of whether it is or isn’t revolves around whether the will-makers agreed not to revoke their wills without giving the other notice. There does not have to be an express declaration of this, but is implied in the making of a joint will. Justice Dalton found this to be the case and this decision gives some protection to Mr Masci’s beneficiaries. Mrs Masci is conscience-bound by the mutual will to ensure that Mr Masci’s beneficiaries receive an inheritance as he intended.
What can we learn from this case?
· Homemade wills invariably do not save money. Whilst in the short term, it is tempting not to spend money on receiving expert advice, in the long term, estate litigation is much more expensive. In this case, to such an extent that even the judge urged the parties to reach agreement or “none of them will have any of the benefit which their parents intended for them.”
· Homemade wills are often unclear or lead to confusion. No matter the purity of the will-maker’s intentions, it may be difficult to interpret what they mean after they've passed away. This is especially true when no legal advice has been sought by the will-maker, and they haven’t known what they should cover in the document. In this case, while Mr & Mrs Masci probably thought the term “all monies” was clear, the co-executors couldn't agree on its meaning to the extent that they required the court to decide the meaning. This is a very expensive exercise.
· Blended families bring a level of complexity to estate planning. If ever there was a situation that requires careful thought and planning, it’s a blended family situation. A specialist succession lawyer can provide the protection of beneficiaries and flexibility required to cover many of the possibilities that could arise.This situation is very complex and requires specialist advice from a lawyer experienced in Succession Law.
Bryan Mitchell, Accredited Specialist in Succession Law (wills and estates including estate planning). Mitchells Solicitors, Brisbane.
Who Needs a Trust?
Who needs a trust and why?
What does a trust have to do with a will?
What is a discretionary testamentary trust?
A discretionary testamentary trust is a type of trust that is created under a will and comes into existence upon the death of the will maker. There are advantages to establishing a trust like this, which include tax minimisation, protection of assets and flexibility.
A discretionary testamentary trust must have a trustee: a person/s or company who will be charge of the trust.
The trust will own assets under the will, and assets can include cash, real estate, shares, cars, boats, artworks or any other assets.
The trust will have beneficiaries – those people who may benefit under the trust; usually family members and can be other persons or entities.
The trustee has discretion to distribute income or capital from time to time in varying proportions, amounts and categories to the beneficiaries of the trust. The trustee has the discretion to make distributions so any appointed trustees should be reliable and trustworthy.
Advantages of a Discretionary Testamentary Trust
Often one of the biggest assets owned by someone is their life insurance policy. When owned by the trust (by being paid out into the estate of the person whose life was insured), the income from the proceeds of such life insurance policy can be split among children and others rather than one person paying all the tax on it (at much higher rates). This is because the recipient of the income pays the tax, rather than the trust. From a tax point of view, sharing the taxation burden makes sense. Tax is still paid; just paid at much lower rates.
A discretionary testamentary trust can protect assets is from bankruptcy. Because the owner of the assets is the trust, they cannot be liquidated if one of the beneficiaries goes through a bankruptcy.
There could also be protection if a beneficiary enters a relationship that ultimately fails. If there is a property settlement, it is less likely that the assets of the trust will form part of the marital pool of assets that will be divided.
There are also advantages in the area of capital gains tax. The sale of an ordinary asset will trigger a capital gains tax event. But if the asset is held in a trust, it can quite often be moved to a beneficiary without triggering a capital gains tax event.
Overall discretionary testamentary trusts offer more flexibility, especially when catering for a myriad of ‘what-if’ events.
Case Study
John and Judy establish a discretionary testamentary trust which comes into effect upon their deaths. They have a son, Peter, who will be the trustee of the trust. Beneficiaries of the trust include Peter, his wife Sarah, their children and grandchildren.
The assets in the trust include both life insurance proceeds, the family home, an investment property and some cash. When Peter assumes control of the trust after the death of his parents, he is able to split income from the life insurance proceeds to his children and grandchildren at low tax rates.
Later, he will also be able to transfer the family home and investment home to his children (if he chooses to do that) without paying capital gains tax on the asset transfers.
Should he, his children or grandchildren face bankruptcy proceedings, the assets held by the trust should not be liquidated, offering protection for future generations.
Should Peter and Sarah divorce, there is a better chance that the assets in the trust will be protected from the property settlement.
The benefits of a discretionary testamentary trust will only come into effect upon your death, but it is worth considering to protect assets for future generations. You should seek specialist advice when considering establishing a trust.
Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning). Mitchells Solicitors has a second, brand new location. You can visit us by appointment only at: Riverside Centre Level 18, 123 Eagle Street, Brisbane.