It’s difficult to find the motivation to think about our eventual death and the effect it will have on our loved ones who survive us. When approaching the task of estate planning and the provisions of your Will, it is best to engage in the process with a positive frame of mind, setting out to accomplish an essential task of responsible adulthood to provide peace of mind for yourself and your loved ones.
In a clear and straightforward manner, your Will should set out how you would like your estate to be distributed after your death. In many cases, this is an overwhelming task, as the possible outcomes seem endless when projecting forward into the future and attempting to predict how life will play out for both you and your loved ones. To manage this, though it is important to consider what the future holds, it is best to prepare an estate plan based on your present circumstances. With that in mind, your estate plan should cater for your present circumstances, with enough flexibility and clarity in a carefully drafted Will to allow for changing circumstances in life.
The following are a list of common factors that need to be considered when drafting your new Will.
1. Who will you appoint as your Executor?
The choice of Executor is one of the most important factors to consider when drafting a new Will. Your Executor is your legal personal representative after your death. You can appoint up to four individuals to act as your Executors, and they can act either jointly or independently of each other. It is also prudent to consider who you would like to appoint as an alternative Executor if your primary Executor is unable or unwilling to act, or continue to act. This allows some flexibility in the Will should circumstances change in the future.
Specifically, some of the duties of the Executor include:
- being responsible for the body and making the funeral arrangements;
- locating the final Will and preparing an application for a Grant of Probate with the Supreme Court;
- collecting your assets;
- paying off any of your liabilities;
- administering the estate as per your Will;
- preparing your final tax returns and subsequent returns for their estate; and
- defending the validity of your Will if there are legal proceedings instigated against your Estate.
2. Who will you appoint as your Trustee?
The distinction between your Executor and Trustee is one that will seem more relevant from a lawyer’s perspective than from your own. From the time of your death until your estate has been administered, your Trustee is the legal owner of your property, holding such property on trust for the nominated beneficiaries.
Even though the same people are usually appointed as Executors and Trustees, from a legal perspective the functions and duties are different. This is particularly important for Wills that contain Testamentary Trusts, whereby the estate’s assets are legally owned by the Trustee for the benefit of the beneficiary or class of beneficiaries.
Factors to consider when appointing a Trustee include:
- How many trustees should be appointed?
- How are decisions regarding your estate be made – by majority vote or by unanimous consent of your trustees?
- Should a Primary Trustee be appointed to have ‘final say’ should there be any disagreement between your trustees?
- Should you allow your children to be appointed as trustees, and if so at what age?
- Should you appoint an independent trustee to assist with the duties of the Trustee?
3. Who will you appoint as the Guardian of your minor children?
For young families, one of the hardest decisions to make is who they will appoint to act as the guardian of their children whilst they are under the age of 18. The guardian will be responsible for the upbringing and wellbeing of your minor children. It is a big responsibility to bestow onto someone and it is best to discuss it with the individual(s) you are considering appointing before you make your decision.
4. What will form part of your Estate: estate and non-estate assets.
There is a distinction between assets you own and assets you control. It is a common misconception that your Will deals with both. Your Will deals only with what is referred to as ‘Estate Assets’. When drafting your Will and considering how to distribute your estate, you first need to understand which assets actually form part of your estate and therefore subject to the provisions of your Will.
Estate Assets are assets that you own personally in your own name solely or as a tenant in common (as opposed to as joint tenants, or jointly owned assets). Common estate assets include:
- Individual bank accounts.
- Shares in trading and public companies.
- Certain chattels and household items.
- Real property.
As the name suggests, non-estate assets do not form part of your estate and therefore are not subject to the provisions of your Will. Usually, non-estate assets have a legal owner that is separate from the beneficial owner. The perfect example is the relationship between Trustee and beneficiaries of a family trust: though the Trustee is the legal owner, the beneficiaries are the beneficial owners of the assets that form part of the trust. The relationship between a director and shareholders is similar in the company scenario.
Examples of non-estate assets include:
- Jointly held assets: the doctrine of survivorship automatically vests ownership in the surviving owner(s) of the asset on the death of an owner. As such, if a property is owned as a joint tenancy between you and your partner, this will only form part of the surviving partner’s Will. Ordinary people usually aren’t aware of the difference between ‘joint tenants’ and equal ‘tenants in common’, and as such it is prudent to refer back to the certificate of title or conduct a title search to determine how the proprietorship is registered.
- Assets held by a Trading Company: you may be the director and/or shareholder of a company, but you can’t distribute company assets under the terms of your Will. However, whilst the assets owned by a company entity will not form part of your estate, the shares in that company will if they are personally held by you. In this way, though you can’t replace yourself as a director (or company secretary) under the terms of your Will, by directing the control of the shares via terms of your Will, you can allow for the appointment of replacement director(s). Alternatively, you may wish to consider developing a Succession Plan.
- Assets held by a Trustee of a family trust: as above, though the legal ownership of the asset lies with the trustee, and the beneficial ownership of the asset lies with the beneficiaries. Care has to be taken to ensure that the existing trust deeds facilitate the appointment of replacement trustees and/or appointors after the death of the initial officeholder.
- Superannuation benefits: though it may seem strange, superannuation benefits do not form part your Estate. However, by having a properly drafted superannuation death benefits nomination to the Trustees of your superfund, your member benefits can be directed into your Estate and therefore distributed in accordance with the provisions of your Will.
5. What type of Will do you need: simple Will or Will incorporating a Testamentary Trust structure?
Most people are probably familiar with a simple Will. It refers to a type of Will, usually short, that simply distributes assets of the estate as gifts to a list of beneficiaries in their own name. An example of a common simple Will is a “Mum-and-dad” Will which leaves the entire estate to the surviving spouse, and in default, to any children of the relationship.
A more complex Will is one that contains a testamentary trust structure. In essence, these Wills leave assets within one or multiple trust structures for the use and benefit of a certain class of beneficiary and can last for generations. There are many benefits of having a Testamentary Trust structure (for example, capital protection and preservation, and tax effective for beneficiaries), and though they aren’t necessary for most people, Testamentary Trust structures are valuable in the following circumstances:
- where the estate is large (taking into account possible life insurance proceeds and superannuation death benefits);
- when potential vulnerable beneficiaries require additional protection; or
- where provisions regarding the control of family entities (such as trusts or companies) is required.
If it is determined that a Testamentary Trust structure is appropriate, it is important to consider how the trust is to be controlled, which further emphasises the importance of selecting suitable Executors and Trustees.
6. Do potential vulnerable beneficiaries require extra protection or further provision?
Regardless of the type of Will required, there are some beneficiaries who on account of their age, health, relationship status or business endeavours, require additional protection in managing or preserving their potential inheritance under your Will. Some options to be considered in such circumstances are:
- Making gifts contingent on certain conditions being met, for example, after a certain age has been attained.
- Providing a ‘life interest’ or a ‘right to reside’ for the vulnerable beneficiary in real property, as opposed to giving the property to them as an outright gift under your Will. Under these options, the underlying value of the property is preserved for other beneficiaries.
- If it is determined that a Testamentary Trust structure is appropriate, then you may consider:
- A testamentary trust with independent trustees – the vulnerable beneficiary will be the beneficial owner of the trust assets, but their access to assets will be determined by independent trustees for their benefit.
- A Capital preserved testamentary trust for the vulnerable beneficiary – this allows the vulnerable beneficiary to have access to the income generated by the trust, but the underlying assets are preserved for other beneficiaries.
- Vulnerable beneficiaries with disabilities may be eligible for a Special Disability Trust.
Having considered these factors, you will be better placed to engage in preparing your Estate Plan with your advisor and running through the options to affect the various provisions you intend to make via your Wills.