Big Mistake No 1

Most people think that all they have to do is to sign a simple Will. They wrongly assume that their Will automatically controls the distribution of all their wealth on their death.

ASSETS YOU CAN’T LEAVE IN YOUR WILL

Jointly held property

When you buy real estate, shares and managed funds or open a bank account with another person then your decision on how to hold the asset at the time of purchase will govern whether you can leave it in your Will.

If you own real estate with another person you may hold it either as ‘joint tenants’ or as ‘tenants in common’. It is easy to confuse the two, and it is important to be sure what type of tenancy you have in the property. If you hold the property as ‘joint tenants’ then on your death your interest in the property automatically goes to the survivor, irrespective of what you have said in your Will. If you hold the property as tenants in common then you can leave your share in the property any way you want to in your Will.

When you buy shares or managed funds with another person on the basis that either of you can sign for withdrawals then a joint tenancy is assumed and on the death of one the asset will automatically pass to the survivor. It’s the same with bank accounts.

If you don’t want an automatic transfer on death to occur then you need to alter the terms of your ownership on the title documents applying to the particular asset. Just to add to the potential for confusion the tax office treats all jointly held assets as if they were owned as tenants in common for capital gains tax purposes.

Property Held in Trust

If you have set up a Family Trust or a Self Managed Superannuation Fund to hold investment assets then these assets can’t be ‘left in your Will’ because under the law although you may be the controller of the Trust during your lifetime you are not the legal owner of the assets held in the Trust. You can’t leave assets in your Will which are not legally owned by you.

What happens to the assets in Family and Super Trusts on the controller’s death? It depends on the terms of the Trust Deed. Most Trust Deeds allow you the controller to nominate who will be the next controller on your death. The Deed needs to be checked to make sure that its provisions actually ‘dove-tail’ with your estate plans. A common problem can arise where control of a Trust passes to one child who can easily disinherit his or her siblings because whoever controls the Trust control all the assets in the Trust. The Will or Trust Deed may need to contain special provisions to ensure that all children share control by ‘unanimous consent.’

Shares in Private Companies

Certain shares in private companies cannot be given by a Will. The Constitution of many Family Companies contains provisions which restrict the right of a shareholder either to participate in control or to have a share transfer registered. Once again the terms of the Constitution of the Company needs to be examined to ensure that a gift of shares in a Will is capable of achieving the Will maker’s intentions.

Business Partnership Property

If you are in a business partnership you can’t leave assets belonging to the partnership in your Will. You can however leave your interest in the partnership. Once again you need to examine what the Partnership Deed says happens on the death of a partner. Many partnership deeds allow for the surviving partners to take years to pay out the interest of a deceased partner.

Your Superannuation

For many people their superannuation account balance and any insurance proceeds attached to their super represents their second largest asset after their home. Most people are shocked to learn that their Will does not necessarily direct what happens to their superannuation on death. The Trustee of the relevant superannuation fund has the initial power to direct where your superannuation goes. Any nomination given to your fund trustee should be reviewed and consideration given to making a ‘binding nomination’. Note many industry and public offer superannuation funds do not permit making binding nominations.

The Proceeds of Life Insurance Policies

If the owner of the policy has nominated a beneficiary of the policy, the nomination takes precedence over the terms of the Will. It follows that, where a nomination is made, the proceeds of the policy do not form part of the estate. If you wish the proceeds of the policy to go to someone other than the nominee, the nomination must be changed. If you are not sure whether you nominated a beneficiary or who you nominated, consult the insurance company concerned.

Big Mistake No 2

People think that as there are no death duties anymore and that their estate will not be subject to tax.

Capital Gains Tax – the back door death duty

Death duties were abolished in 1981 – Capital Gains Tax was introduced in 1985. Today Capital Gains Tax raised on the disposal of assets in deceased estates raises many times the amount that was collected under death duties. The reason for this is quite simple – while under Capital Gains Tax laws death is not a ‘deemed disposal’, the assets of most deceased estates are sold so that the estate can be conveniently distributed usually to two or more beneficiaries. The sale of estate assets almost invariably attracts Capital Gains Tax (up to 48.5% of the gain) whereas death duties were capped at 15%.

The standard Will drawn by most solicitors offer little or no assistance to beneficiaries in dealing with Capital Gains Tax as few solicitors have the training or skills to consider the tax implications. The use of ‘Testamentary Trusts’ in Wills can achieve significant savings in Capital Gains Tax as a trust structure allows beneficiaries to reduce the level of tax by distributing tax gains to family members on lower tax rates.

Lump Sum Superannuation Tax

If your superannuation is being directed to someone other than a spouse or dependant then prepare yourself for a tax shock – up to 30% of your superannuation death benefits could be lost to tax. The reason for this is that Superannuation Tax laws treat a payment of your superannuation death benefits as an ETP – the same way as it would treat you if you withdrew your entire super while you were alive.

However all is not lost – with proper planning your affairs can be structured during your lifetime to eliminate or reduce ETP tax. Strategies need to be considered in the context of your overall estate and financial plan and once again your local solicitor who may have little or no knowledge of superannuation laws may be at a disadvantage in being able to give you comprehensive tax effective estate planning advice sensitive to your financial objectives.

Big Mistake No 3

People think that all lawyers are experts in estate planning.

THIS COULDN’T BE FURTHER FROM THE TRUTH – GET EXPERT ADVICE

Getting your estate planning affairs in order is so much more than just getting a simple Will signed, even if prepared by a solicitor. Before you begin the process of documenting your Will the following actions should be undertaken:

• your asset position needs to be carefully researched to ensure your wishes can be met,

• your superannuation fund trust deed needs to be examined and consideration given to ensure the right people benefit,

• your insurance arrangements need to be looked at to ensure that policy ownership is held in the most appropriate way,

• any tax structures holding your wealth needs to be examined and the terms of trust deeds scrutinized and perhaps amended to ensure that all of these documents are in harmony with your requirements,

• the taxation circumstances, Centrelink entitlements and asset protection needs of your beneficiaries needs to be professionally considered.

Only after all of the above steps have been completed can it be assured that your Will and other estate documentation will do what you want them to do effectively.

Big Mistake No 4

People think that once their Will is done they can forget about it.

KEEPING YOUR ESTATE PLANNING AFFAIRS UP TO DATE

It has been said that the only certainties in life are Death and Taxes. Our experience suggests that a third certainty exists for us all and that is – change.

It is important that your estate planning affairs be reviewed professionally on a regular basis. Every purchase or sale of an asset will have ‘estate planning’ ramifications, every change in tax laws could have an effect on your estate planning taxation strategies and so on. Your Will is in essence a living document, that must be updated as your live changes. For these and many other reasons, and despite your best laid plans, change can undermine your estate plan unless a review process is put in place.

Big Mistake No 5

……the worst mistake…is to think that it can wait. The best time to get your estate planning affairs in good order is …….now.