This is the greatest value we can provide on your untimely passing. We will turn up and help your family navigate the emotional and confusing situation and guide them through the process ahead.
7 MINUTE WISDOM PODCAST #21: The Due Diligence Report
Here's brief insight into how a specialist Estate Planning Lawyer will operate. It's more than just a Will—a thorough review of your situation will take place to maximise your Estate. It certainly pays to seek advice from specialists in this field.
7 MINUTE WISDOM PODCAST #19: How To Choose Your Executors
A lot of people struggle to choose the people who they want to ultimately represent them on their passing. A family member will have your best intentions at heart, and someone with business and professional experience will be valuable for key decision making.
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 #17: Planning From The Heart
Estate Planning, it's not just the hard facts and figures. More valuable are the emotional facts—those which you draw from your heart. The instructions you leave behind that will help your family when they are grief stricken with your loss.
7 MINUTE WISDOM PODCAST #15: You May Not Own What You Think You Own
Your family home, your life insurance policies, your superannuation. Some of the most valuable assets that contribute to your estate. Don’t let them be passed down to the wrong beneficiary because of an oversight or misunderstanding of the terms.
7 Minute Wisdom Podcast #5: The Unaware Squared Trap
The greatest danger in estate planning could be the fact that you simply don't know what you don't know. Could there be something missing from the advice you have received? A thorough, detailed discovery questionnaire is essential to eliminate potential issues.
HOW TO PLAN YOUR ESTATE IN THE EVENT OF BANKRUPTCY
What happens to your assets if your beneficiary goes bankrupt?
Using a Testamentary Discretionary Trust
Bankruptcy is a very real possibility for anyone in business, even as fears about a slowdown in China, the over-heated property market and fluctations in the stock market abound. While many canny business people structure their current circumstances to avoid losing assets in the event of bankruptcy, very few have given thought to what might happen if one of their adult children goes bankrupt. What happens to your assets, if left to a bankrupt child in your will?
Those assets are lost to your child's creditors.
But there is a way of planning for this possibility.
A testamentary discretionary trust is a type of trust created under a will, comes into existence only upon the administration of the deceased estate and has four elements: the trustee(s), the assets, the beneficiaries and the discretion. One of major advantages of using a testamentary discretionary trust is for asset protection. There are three examples assets can be protected.
Bankruptcy
Consider this scenario: you have retired after a lifetime of work, and you have your home, your super, and some investments. You’d like to pass on these assets for your son’s benefit and the benefit of his children. Your son is a successful businessman, but the GFC hit him hard. He lost revenue and staff, and now the banks are closing in, threatening to sell off his assets to repay their debts. If you were to die, and your will passes your assets directly to your son, your assets could be used to satisfy your son’s creditors. Section 116 of the Bankruptcy Act 1966 says that when someone becomes bankrupt, all property vests to the trustee in bankruptcy. But S116 (2)(a) adds that this does not extend to property held in trust for another person.
A better approach is to use a testamentary discretionary trust to be created to come into effect upon your death. The trust will own the assets rather than passing directly into the name of your son. Making your son a beneficiary of the trust means that he can obtain the benefits of the assets held in trust without the risk of owning the assets outright. If Sam goes bankrupt, the creditors can’t place a claim on the assets in the testamentary discretionary trust.
This part of the law is extremely complex. Simply creating a testamentary discretionary trust will not solve the problem. The trust must be structured in a certain way, and tailored to meet the client’s specific circumstances. If the trust is properly structured and carefully planned, none of the beneficiaries has an absolute entitlement to capital or income, and for a trustee in bankruptcy to say otherwise would then impact on the rights of other potential beneficiaries.
High-Risk Professions
Because a testamentary discretionary trust is the legal owner of the assets, rather than a person, it is highly attractive to beneficiaries who are at risk of being sued, such as solicitors, doctors, company directors and business owners. Any legal action against them personally cannot take the assets of the trust, which protects the assets for future generations. It is common for such professionals to take care not to own assets in their own names throughout their career, but what about the people they might receive an inheritance from?
Alan is a financial planner in a partnership of four. A regular audit discovered that one of his partners has been conducting business dishonestly, investing funds on behalf of clients that the clients did not authorise. A group of clients launches legal action against the partnership for damages. Fortunately Alan owned very little in his name, preferring to keep assets well out of his (and his creditor's) legal reach. However, when his father died in the same year, his strategy fell apart. His father had made no provisions in his will to take into account Alan’s risk of being sued. The assets were inherited in Alan’s name, and used immediately to satisfy his creditors. Rather than his father’s assets being used for his family’s benefit, they were lost.
A testamentary discretionary trust established by his father would have avoided this scenario. The assets would have been owned by the trust and the creditors would not have been able to touch them. This is a what-if scenario rarely considered by someone who doesn’t know succession law thoroughly.
Spendthrift
Finally, a testamentary discretionary trust can be used to protect assets where a family member has a vulnerability. Inheriting a chunk of assets or money is not always in the best interests of a beneficiary, and a trust can distribute income or capital with discretion not available under a normal will.
An example would be for a child with a gambling problem. Rather than receiving his share of the estate in one big transaction, a trust can distribute an income stream or small capital distributions so that the gambler can’t lose the assets. In this way, assets can be protected from his compulsion for the benefit of his children or other family members.
Bryan Mitchell is an Accredited Specialist in Succession Law (Qld).
New Changes to Estate Litigation
On 21 October 2014 the Justice Legislation Amendment (Succession and Surrogacy) Bill 2014 Act (the Act) received assent – it is now official, the landscape for Estate litigation has changed.
What is the impact?
The Act changes the law as to who can challenge an Estate in Victoria (Estate claim). The Act comes into effect from 1 July 2015 and will apply to :
- an estate of any person who dies on or after this date; and
- any claims made after this date.
Up and until 1 July 2015, any person can continue to bring an Estate claim on the basis that the Estate (either by Will or the intestacy laws) does not adequately provide for them. The range of persons who can claim can be as wide as children, domestic partners, step children, grandchildren, carers, related family members and non-family members (such as friends, neighbours).
Who can claim?
From 1 July 2015, essentially two categories of persons will be able to claim. Only those who are ‘eligible’ and who fit into a defined category will be able to claim, they are:
Group one – related/immediate family members :
- a spouse or domestic partner;
- a child or stepchild of any age with or without a disability;
- a person who for a substantial period during the life of the deceased believed that the deceased was his/her parent and was treated by the deceased as a natural child of any age; and
- a former spouse or domestic partner (only if no property settlement reached).
Group two – others :
- a grandchild;
- a registered caring partner;
- a spouse or domestic partner of a child of the deceased (including a step child or person who for a substantial period during the life of the deceased believed that the deceased was his/her parent) if the relevant child of the deceased dies within one year of the deceased’s death; and
- a person who, at the deceased’s death is a member of the household in which the deceased was also a member (or had been in the past and would have been likely again in near future have the deceased not died).
If an eligible person forms part of group two :
- that person must be wholly or partly dependent on the deceased for proper maintenance and support; and
- the Act casts an obligation upon the Court to assess that person’s ability to, by reasonable means, provide for their own proper maintenance and support.
The Act is not as restrictive for adult children/step children as what was contemplated in the Bill. For instance, the requirement that an adult child or step child be wholly or partly dependant on the deceased for their maintenance and support has been removed.
It is likely that there will be a significant number of claims issued leading up to 1 July 2015.
Post 1 July 2015 it is likely there will be a significant increase in the number of persons who become a registered carer, with Births, Deaths and Marriages. Those persons who can be registered as a ‘registered caring partner’ do not need to be a direct family member.
There is also likely to be an increase in executors or administrators delaying applications for a grant of probate or letters of administration for a deceased Estate so as to avoid claims being brought before the commencement of the Act. This may well result in different litigation being issued to force an executor/administrator to apply for a grant of representation, rather than stall.
The positive outcome is that a Willmaker’s fundamental rights to leave their estate as they see fit is strengthened and deceased estates will be less susceptible to opportunistic claims.
To read the full article, please click here.
If you have any queries please either contact Sam Frey, Jennifer Maher or Sharon Favero.
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