Financial Planning in Australia
CHAPTER 18 — ESTATE PLANNING — CORE PRINCIPLES AND PRACTICE Solutions to Questions Question 1 The seven steps in the estate planning process are: 1 2 3 4 5 6 7 Identify and prioritise the client’s objectives. Assess the current and likely future circumstances. Ascertain adequacy of short- and long-term funding. Assess and identify problems. Formulate the strategy. Implement the plan. Ongoing review.
Question 2 Individuals control their wealth either directly through their direct, personal ownership or through intermediate structures or arrangements such as companies, trusts, partnerships, joint ventures or other comparable enterprises. Estate Asset Testamentary Asset, eg solely owned asset Non Testamentary Asset Jointly owned asset Life, ‘TPD’, Trauma or other Insurance Likely Decision-maker Willmaker Likely Governing Document Will
Legal owner of property, eg Governing document of company or trustee estate structure Surviving joint owner Policy owner or nominated beneficiary Surviving joint owner’s Will Insurance Policy Nomination
Superannuation/Allocated Pension/ Fund member Self-managed Superannuation Fund (binding nomination) Superannuation/Allocated Pension (no binding nomination) Self-managed Superannuation Fund (no binding nomination) Family Trust Fund trustee Surviving member(s), in conjunction with Executor Trustee or Directors
Trust Deed or Terms of Annuity Trust Deed of Trust Deed
Estate Planning generally responds to risks perceived by the client that are believed to be of significance. These risks include: • • • • • financial creditors; beneficiaries’ financial creditors; increasingly, the former spouses of both estate planners and beneficiaries; disgruntled family members of the client, who might attempt to overthrow the estate administration arrangements; beneficiaries themselves, for example spendthrift or otherwise vulnerable beneficiaries such as those under intellectual disability.
In addition, clients are increasingly seeking to assure their financial resources are structured to assure their long-term benefit to collective family or community interests. If long-term endurance of capital is to be assured, it is necessary to establish a form of collective ownership and benefit for that capital. Trusts and companies are two common forms of estate structure that are used to establish family collective wealth management enterprises. It is in the establishment of collective asset ownership structures that capital is taken out of personal ownership and the risks of such ownership and placed in a form of ownership that will not be adversely affected by the death or disability of a family member. Such collective capital ownership structures carry operational and governance risks. Clients assess that these risks are of less concern than the life risks the assets would be subject to whilst remaining in personal ownership. The motivation for estate structuring is therefore centred on the accountability of a person to their family and responds to the client’s objectives for: Family legacy Family continuity and governance Philanthropic legacy Financial security Wealth preservation and enhancement Business continuity and wealth extraction Establishing effective family governance processes remains a key requirement for meeting family wealth and continuity objectives. Neither solvency nor tax forms any substantial motivator for estate planning and asset protection in this service approach. Question 4 It is sufficient to say that in very basic terms a will is a legal document in which a person chooses the controller of his or her testamentary estate (by selecting an executor), and sets out how and to whom his or her assets are to be distributed after death. Gifts can be made either directly to beneficiaries on terms and conditions set out in the will or through trusts of various terms that can be established by operation of the will.
Because a will’s appropriateness can only be tested by periodically testing its fitness against a client’s circumstances, it is necessary to review the ongoing appropriateness of the will if there is a change in the client’s circumstances or sentiments. This can be done in the course of normal periodic reviews of the client’s affairs in which the assumptions which underlie a will are tested with questions such as: Has anyone in your family died? Have you developed connections with jurisdictions outside Australia since you made your last will? Have you acquired or disposed of any substantial property or collectables? Has anyone named in the will married, started a domestic relationship or moved overseas? Have any beneficiaries developed diminished capacity? Do the range of beneficiaries in your will remain appropriate? Do any direct gifts in your will remain appropriate? It is helpful in understanding wills to remember that a deceased estate is considered by the law to be a trust, the trustee of which is the person’s nominated executor, and the beneficiaries of which are the nominated beneficiaries under the will. The manner in which the deceased estate is to be administered and the powers that the executors have to do so are set out in the terms of the will. Each state and territory has also enacted legislation governing trustees that confers powers on the executors and trustees. Why does a person need a will? The law provides a form of default inheritance where a person does not make a will; this is called intestacy and is governed by separate laws in each state of Australia. Wills can only deal with a person’s testamentary estate assets, as defined previously in this chapter. For people with limited estate assets, therefore, it may be that a will is not an overly complex document. The additional complexities of dealing with the arbitrary inheritance of the intestacy regime mean that, even in the simplest cases, the making of a will creates the simplest and most straightforward administration of the person’s testamentary estate when they die. Why then are wills important even for such people?
a)
Ease of administration of assets
If a person dies without a will they are said to have died intestate. Where there is no will, the deceased’s family members must apply for letters of administration. No one can deal with the deceased’s estate assets until such time as letters have been granted. This is in contrast to an executor appointed under a valid will, who can act immediately. Generally speaking, an application for letters of administration can be more time consuming than an application for a grant of probate of a will. It can therefore be more difficult for a person’s family members to deal with that person’s estate if they do not have a will.
Under a valid will, a person is able to nominate the most appropriate person or organisation (eg, a public trustee company or firm of advisors) to act as executor. An executor is responsible for ensuring that the will and estate assets are duly administered. In some cases, estates can continue for quite some time (eg, where there are minor beneficiaries or other ongoing trusts such as life interests). Where this is the case, the nominated executors are also responsible for managing and investing the estate assets. A person’s executor can also play a crucial role in the control and administration of nonestate assets. Many trust deeds establishing discretionary trusts provide that an appointor’s legal personal representative (that is, executor or administrator) will become the appointor of the trust on the appointor’s death if no other succession arrangements have been made. More importantly for many people, a person’s legal personal representative stands in his or her shoes as trustee or shareholder of the trustee company of that person’s self-managed superannuation fund (s 17A(3) of the Superannuation Industry (Supervision) Act 1993). If a person does not have a valid and (most importantly) up-to-date will, they forgo their choice of executor. Upon their death it becomes open to family members to apply to the court to be appointed administrator over the estate. In the many complexities of modern families, the results of leaving this issue uncertain could be disastrous. The resulting uncertainty could lead to an inappropriate person obtaining control of assets and, at worst, result in lengthy and expensive disputes. Establishment of protective mechanisms If a person dies intestate, whilst assets will be distributed amongst their family members, the person will have no control over the manner in which the family members inherit. In such circumstances, beneficiaries will inherit upon attaining 18 years of age in their personal names. This might be the least appropriate way for them to receive assets. Question 5 Testamentary trusts are an alternative to making direct gifts under the will. A testamentary trust’s purpose is to administer defined property that comes into the estate in accordance with specific rules established by a will maker. Testamentary trusts can therefore be defined as trusts that are: • • established by a will; funded by: – the assets of a deceased estate; or – by payments to the estate in consequence of death, eg, superannuation, death benefits or insurance proceeds paid to a deceased estate rather than directly to dependants or nominated beneficiaries; and to be administered by the executor of the estate or a trustee appointed in accordance with the will and subject to the terms of the will.
•
Types of testamentary trusts Testamentary trusts can be divided into several main categories, ranging from very restricted trusts designed to protect a vulnerable beneficiary to the fully discretionary trusts that have
Fixed and non-fixed trusts Section 272-65 of Schedule 2F of the Income Tax Assessment Act 1936 (‘ITAA 1936’) distinguishes between trusts that are fixed and those that are non-fixed for the purposes of determining the manner in which trust losses are treated for tax purposes. Generally speaking, fixed trusts are trusts in which all income and capital entitlements are fixed for the benefit of individual beneficiaries (eg, a unit trust in which only ordinary units can be issued, and only individuals — as opposed to other trusts — hold the units). Non-fixed trusts, in contrast, are trusts in which the trustee has some discretion as to which beneficiaries might receive income or capital (eg, a discretionary family trust). It appears that government might extend the operation of this distinction in future reform of the taxation of trusts. This is therefore probably an appropriate method of classifying testamentary (and indeed other types of) trusts. Testamentary trusts include: Trusts conditional on a condition being met, for example: 'I give $200,000 to my trustee on trust to pay that amount to my nephew John when he reaches the age of 25 years.' Trusts for a defined purpose, for example charitable, use of a property for accommodation, protective trusts, maintenance trusts, education trusts. Fully discretionary trusts. These are used when a will maker wants to establish a multigenerational wealth management structure through their will. Question 6 Where a client wants to impose their rule book for the management of their estate to rigidly control the future activities of their successors in managing that estate, they are said to be 'ruling from the grave'. In ruling from the grave, control of the inheritance by the beneficiary in question (to whom we will refer as the ‘principal beneficiary’) is either delayed or removed altogether. In such cases control of the testamentary trust is placed in the hands of the executors of the will, or in some cases, other trustees. The principal beneficiary’s access to the funds might be restricted to just the income of the fund or, particularly where the principal beneficiary is subject to disability, such income or capital as the trustees decide is appropriate for his or her needs. This has to be contrasted to the use of a person’s will to establish a method of long-term management of the testamentary estate for the benefit of multiple beneficiaries on often very flexible terms. With the progressive introduction of uniform succession legislation across Australian states, it is clear that the establishment of trusts within wills is not an improper delegation of will making power from the will maker to the estate or testamentary trust trustees. It is therefore perfectly in order for the will maker to 'rule from the grave' and instead of breaking up his estate and making direct gifts of his estate to various people, the delivery of benefits to beneficiaries can be postponed and managed through various trust-type mechanisms in a will.
The estate advisor first must determine what is the method of estate administration that the testamentary trust is intended to support or implement. It is then possible to determine the fine detail of the trust terms, in conjunction with an appropriately qualified lawyer. Unless you are using a perpetual trust jurisdiction such as South Australia, any trust-based form of 'ruling from the grave' must come to an end when the perpetuity period of the relevant trust ends. A trust can also come to an end when it is terminated in accordance with its terms or the law. Subject to these limitations and the application of family provision legislation in each state, it is possible to rule from the grave for an extended period after death. The issue for the estate planner is: what degree of control is it appropriate for the will maker to impose on his successors after his death? If asset protection for beneficiaries is a substantial objective for the will maker then substantial rigidity in the terms of trust or will operations after death may well be very appropriate for the circumstances of the will maker’s successors. Question 7 Where the asset in question is the deceased’s main residence, the main residence exemption to the dwelling will continue to apply provided the dwelling is either sold, or passed on to a beneficiary who will continue to use the dwelling as his or her main residence, within two years of the deceased’s date of death. It is not uncommon, however, for wills to pass the family home on to the surviving spouse pursuant to a life estate, particularly in the circumstances of a second relationship, where both spouses wish to protect their interests in the family home for their respective children. In order for the main residence exemption to be maintained for the lifetime of the survivor, it is essential that the will give the surviving spouse not just a general life interest in the dwelling, but also an express right of occupation in the property. Question 8 Death benefits must be paid to either the spouse of a member, their estate or to death benefit dependants recognised for superannuation law purposes. Whether or not a particular fund trustee can pay death benefits will depend upon the terms of the relevant superannuation fund deed. For example, some self-managed fund deeds only permit payment of benefits to a member’s estate if there are no surviving superannuation dependants, and many funds do not offer death benefits in pension form. The payment of death benefits may also be regulated by beneficiary nominations made by the member to the extent permitted by SIS law and the Trust Deed. Question 9 Powers of attorney are the means by which a person establishes representatives of them and their interests while they are alive. They are focused on legal, business and financial decision making. Health and lifestyle management are normally subject to separate forms of guardianship or medical treatment directives.
Powers of attorney are therefore important means of ensuring that decisions can be made at times when it is impractical or inconvenient for the person (or entity) granting the power of attorney to be making those decisions. Under the terms of a power of attorney, the grantor of the power appoints a representative to be their attorney and gives the attorney the authority to act on the grantor’s behalf within the limitations applying to the particular type of power of attorney. Usually there is no requirement for the attorney to obtain the grantor’s specific prior or subsequent approval or endorsement for any acts or decisions taken as the act of granting a power of attorney creates a legal agency between the donor of the power and the attorney. An attorney normally has the power to act independently of the donor, subject to the terms of the document, if such action is within the scope of authority granted by the power of attorney. Powers of attorney may be made for limited purposes or durations. They may also be made in broad terms for long-term personal care and representation issues. In either case they can also be specified to operate in the event the donor of the power loses the capacity to direct their affairs; this is called an enduring power of attorney. Key choices clients have to make in establishing powers of attorney include: • Who do you trust to manage your affairs in your interests notwithstanding you may not be able to observe or control them? • Should the power of attorney be for a limited period or be subject to conditions? • What should happen if the attorney loses capacity or the ability to act? • Are you satisfied the attorney will act when necessary? Powers of attorney create the power to act but not an obligation to act. Powers of attorney are therefore an essential element of estate planning for managing the affairs of a client while they are alive. Question 10 Types of powers of attorney An estate planner can put powers of attorney into place by executing documents that follow the wording and format specified in legislation enacted by the relevant state or territory. The examples that follow are generic summaries that should be cross-checked to the legislation and procedural requirements in each state. Alternatively (but perhaps less commonly), individuals or entities can appoint attorneys pursuant to commercial agreements that do not comply with any statutory form, but which are effective at common law. All statutory powers of attorney are extinguished by death of either the grantor of the attorney or attorney. It can be advantageous for the same person who holds a financial enduring power of attorney for a person to also be appointed executor of the will of the grantor. It is also important to distinguish between enduring and general powers of attorney. Persons appointed pursuant to enduring powers of attorney can continue to act even if the grantor (in our case, the estate planner) has lost capacity. Persons appointed pursuant to general powers of attorney cannot.
This is the document that so many people are well advised to prepare. It allows a person to nominate their own choice of representative in the event that, for reasons of geography, health or otherwise, they are unable or decide not to make their own financial decisions. Enduring powers of attorney can save considerable time, cost and inconvenience, both on a personal and business front. Enduring powers of attorney have their limitations; for example, an enduring power of attorney cannot act as an executor and they are very dangerous documents in the wrong hands.
b)
Enduring power of attorney — medical treatment
This type of power of attorney permits the attorney to make decisions regarding the grantor’s medical treatment in the event the grantor has lost capacity and is unable to do so. The power usually extends to the authorisation of the withholding of medical treatment. It is a less frequently prepared document, as in practice these decisions are often made by close relatives when the need arises. It becomes particularly important to have such a document in place when the preferred choice of decision-maker might not be the closest relative or there might be the potential for disputes between close relatives.
c)
Enduring guardian
This document has different names in different states and territories. It allows the guardian to make decisions about issues such as accommodation and support services and other lifestyle needs of the grantor after the grantor has lost capacity. Again, it is more likely to be needed when the preferred choice of decision-maker might not be the closest relative or there might be the potential for disputes between close relatives.
d)
General power of attorney
This is the one type of statutory power of attorney that is not enduring; that is, it does not continue on to apply when the grantor has lost the capacity to make independent decisions. It is most commonly used for particular transactions, for example, the purchase of a family home or the exercise of an option to purchase, or for particular groups of transactions, notably the running of a business or the management of an investment portfolio. Like all powers of attorney, a general power of attorney is a dangerous document in the wrong hands.
e)
Commercial powers of attorney
Not all powers of attorney have to follow the various statutory formats. It is also possible to include a power of attorney as part of an agreement between parties to a commercial or other transaction, for example between a lending institution and a borrower. Such an agreement may give one or both of the parties the power to act as an attorney in certain circumstances, for example if the other party defaults under the terms of the agreement. Where directors of companies, the trustees of trusts and the executors of deceased estates wish to enter into such an agreement, it is important that they have the power to do so under the company’s constitution or the terms of trust, for example a trust deed or a will. This is usually achieved by the inclusion of an express power in the constitution, deed or will.
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Immediate and reserve powers of attorney For many people, the choice of attorney is not always an easy one. For example, a couple may want to appoint each other, if available, and may want one or more of their children or other relatives to act if the other partner is not available; for example, because the other partner is interstate or overseas or has lost capacity to make decisions. In order to ensure that an estate planner’s intended person is appointed in as many circumstances as possible, it is usually prudent for the estate planner to appoint an immediate attorney, and a reserve attorney to act if the immediate attorney cannot act. In order to do so, powers of attorney can be jointly and severally granted to two or more people, for example a partner and a child. Alternatively, provision can be made to put conditions upon the reserve attorney’s appointment. The ability for the estate planner to place such conditions upon an attorney varies from state to state. For example, in Queensland a donor is able to specify the various conditions on an attorney’s appointment within the power itself, whilst in Victoria the forms are not so flexible, although, at the time of writing, new legislation has been enacted, but is yet to take effect. Specific legal advice should be obtained in each client’s case to ensure that the legislative requirements are met. Solutions to Problems Problem 1 1 2 3 4 5 6 Was the property also Aunt Jenny’s prime residence? The acquisition costs including acquisition costs, for example legal fees. Transfer costs such as stamp duty transfer costs etc. Incidental costs re improvements. Capital expenditure. Notional disposal costs.
Problem 2 An executor can be any one of the following: • • • a natural person; a trustee company; a professional advisor.
An executor is responsible for administering and settling the estate after the willmaker’s death. The responsibilities of an executor include: • • • • • • settling the debts of the estate; paying any outstanding expenses; collecting any insurance proceeds or retirement benefits; settling any taxation issues and lodgment of any outstanding returns; obtaining probate; distribution of assets to beneficiaries.
Problem 3 This is a most tax-effective strategy with the trust paying nil tax on the trust income. Had there been no trust, Jack would have paid income tax at his marginal rate and, as a result, half of the income to tax.
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Problem 4 The note attached advises James that the authority given under the Victorian power of attorney does not conform to the requirements of the Queensland legislation and is therefore ineffective and James does not have authority to act on Jane’s behalf in the sale. As a result the sale falls through. Problem 5 In order to ensure that the house would remain subject to the main residence exemption for capital gains tax purposes, their wills would need to be drafted in such a way as to give the survivor of them a personal right to occupy the house for their lifetimes, and also include a power for the executors to substitute the property at the request of the survivor. Solution to Case Study 18.1 The following plan sets out our views on the various issues. We emphasise, however, that there are certain elements of the plan itself, and many steps in the implementation process, that will require the assistance and specific advice of other advisors. In particular, we anticipate that you will need to engage either your usual lawyer, or if he or she is not experienced in handling complex estate planning matters, then another lawyer who practises in the area of estate planning, and obtain taxation advice from either your accountant, or another appropriately qualified taxation advisor. It is our intention that this plan will provide these other advisors with sufficient information to advise you; however, it may be that they will request further information or documentation. In particular, we anticipate that it will be necessary for you to meet personally with the lawyer to discuss your estate planning needs. In light of your complex circumstances, you might find it beneficial for us to also attend at least your initial meeting with the legal practitioner, and we would be happy to assist in this way. Step 1 — Your Objectives You have stated that your key estate planning objectives are to ensure that: 1. In the event one of you pre-deceasing the other that the survivor of you retains control of and benefits from all of your overall wealth. 2. In the event of the death of both of you, you wish to ensure that the children of your marriage benefit from your overall wealth equally. 3. You wish to ensure as far as possible that Brian’s former wife or his son from his previous marriage do not benefit from any of your assets and, in particular, cannot challenge any arrangements you might put into place. This is because Brian has provided for them extensively in his family law settlement. 4. In light of your respective occupations, you also wish to ensure that your assets are protected as far as possible from unexpected creditors. Step 2 — Your Circumstances Your personal circumstances You are legally married and are expecting your first child together. Brian has a son from his previous marriage who is eight years old. This is the first marriage for Annie. Brian is a partner in an accounting firm and Annie is a medical practitioner. Annie anticipates she will recommence work on a part-time basis shortly after the baby is born.
Your beneficiaries’ circumstances You are each the beneficiary of the other’s estate. Your key circumstances for estate planning purposes are: • Your respective ‘risk’ occupations. • • The risk to Brian’s estate of claims by his son (potentially effectively brought on by his former wife). That the survivor of you is likely to have the care of minor children should one of you pre-decease the other in the short to medium term.
Your current assets and liabilities We confirm that our understanding of your existing asset ownership is essential to our being able to provide appropriate estate planning advice. The following tables set out our understanding of your asset holding. In completing the table, we have considered the latest available balance sheets for your entities, and we understand your accountant will confirm your asset holdings prior to our taking any steps to implement this plan. Personal Assets Asset (Example: family home, investment property, share portfolio) Family home Owner (Example: husband, wife, joint, company, trust, super) Annie and Brian jointly Estimated Pre/Post value/encumbrance CGT
$650,000, subject to Post CGT approximately $500,000 debt $30,000 $250,000 $50,000 $80,000 Post CGT Post CGT N/A Post CGT
Share portfolio Investment property Cash Personal effects Superannuation Brian’s member balance
Brian solely Annie solely Annie and Brian jointly Annie and Brian jointly
Accountant’s Society Super Fund
$80,000 plus $240,000 death benefit $20,000 plus $320,000 death benefit
Post CGT
Annie’s member balance
Health Super
Post CGT
Life Insurance Equity purpose policy on Brian’s life Brian $320,000 Post CGT
Equity in accounting practice Brian solely Units in accounting practice Brian’s family trust unit trust 10 shares in Brian Pty Ltd (trustee of Brian’s family trust) Brian
$300,000 $20,000
Post CGT Post CGT
$10
Post CGT
We confirm you have provided us with a copy of the deed establishing Brian’s family trust and the latest balance sheet for the trust. We also confirm that Brian has executed a buy/sell agreement with his business partners, and that his equity and his trust’s units in the practice service trust will be sold to his partners in the event of his death, in consideration of his life insurance policy. Step 3 — Your funding needs In your financial plan, we will consider strategies to ensure that your lifestyle funding needs are met. In an estate planning context, in our opinion, your most pressing need is to ensure that there is sufficient funding to enable the survivor of you to clear your existing home mortgage and to fund the needs of the survivor and your children. Whilst your financial plan will provide the necessary funding in the long term, in the short term, we are concerned that you do not have sufficient funding to carry out your estate planning objectives. Step 4 — Options and impediments In our view, some of the major impediments to you achieving your overall objectives at present include: • The personal ownership of your major assets. In particular, we are concerned that Brian personally owns his business equity policy. Whilst under the Life Insurance Act and the Bankruptcy Act, the benefits are protected from creditors, the benefits would still be vulnerable to an estate challenge on behalf of his son. So too would his share portfolio and, in the event Annie were to pre-decease him, your family home. We are also concerned that Annie personally owns her investment property, as this leaves it exposed to claims by any potential litigants against her or her estate. Given the state duty and capital gains tax consequences of transferring the property, we do not recommend that she transfer the property to any entities at this stage.
•
In light of your objectives and your current asset holdings, we recommend that you consider the following options (please note that all of these options are subject to the more specific legal advice from your estate planning lawyer):
• That Brian consider transferring his business equity policy into a self-managed superannuation fund. Prior to doing so, Brian should check with the lawyers who prepared his practice buy/sell agreement to ensure that this is permissible. Brian’s risk advisor should also advise on the best method of transferring ownership of the policy. It may be prudent to wait until the next renewal of the policy to minimise the risk of any capital gains tax liability on the transfer. The deed of the fund should permit him to make binding death benefit nominations, and permit the fund trustee to pay death benefits in the form of pensions as well as lump sums. In our opinion, this would enable Brian to ensure that the benefits are paid for Annie’s and your children’s benefit in the most tax-effective manner, whilst bypassing his estate. In particular, if the benefits are paid to a superannuation death benefits trust established after Brian’s death, the income earned on the investment of the benefits could be distributed to your children under 18 years of age at adult tax rates. The assets would also be protected from any claims that might be made against Annie. Alternatively, if the fund trustee pays pensions to your children under 18 years of age, not only will the pension stream be taxed at adult rates, but a 15% rebate would also apply. As an added benefit, the premiums on the policy would then be tax deductible to either Brian or Brian’s employment entity. If the costs of a self-managed superannuation fund prove prohibitive, we recommend that you acquire your insurance through the ABC Limited Fund. This fund permits members to make binding death benefit nominations and will pay death benefits in the form of lump sums or pensions (to a surviving spouse or minor child) in accordance with such nominations. • For the same reasons as explained in relation to Brian’s business equity policy, that you both acquire your additional life policies through the same superannuation fund. • You might consider transferring your family home to Annie solely. In Victoria there is no state duty on such a transaction. This strategy, however, would render your home vulnerable to attack should Annie ever be sued in a professional capacity. Whilst you jointly own your home, as it is unlikely that both of you would be subject to litigation at the same time, half your home is protected to a significant extent. Moving your home into a discretionary trust would provide significant asset protection. Such a transfer, however, would be subject to state duty, and you would lose the benefit of the main residence exemption from capital gains tax. We recommend that you consider the issues further and, if necessary, obtain the more specific advice of your lawyer and accountant before making a decision. • Brian’s family trust at present holds minimal assets. It is also not directly trading as it owns units in Brian’s accounting practice’s service trust. From an asset protection point of view, we recommend that you consider implementing our investment strategy via this family trust. According to the more specific advice of your lawyer, such a trust would help to protect your investments from both professional risk and claims against Brian’s estate in the event of his death. We understand that Brian is the sole appointor of this trust and therefore has sole control. We recommend that, before we begin investing through this trust, Annie seeks specific legal advice as to whether or not she should transfer her assets to such a trust. If this proves to be of concern to Annie, we could arrange for either the amendment to Brian’s trust, or the establishment of a new trust that you control together. The best option will depend upon the legal advice you each obtain.
• Finally, we recommend that Annie, in particular, execute a will that establishes a beneficiary testamentary trust for Brian in the event of her death. If Annie were to predecease Brian, he would inherit, at the very least, Annie’s investment property. Such a trust would not only enable Brian to distribute income earned on the inherited assets to your children at adult tax rates, but it would also ensure that the assets do not fall into Brian’s estate on his death, and then potentially into his son’s hands.
Beneficiary Testamentary Trust
Willmaker
Option in Will to utilise 1 or more trusts Crisis provision included Primary Beneficiary Significant tax concessions for beneficiaries under 18
Febraury 2002
Executor Trustee Trust Fund
Spouse/ Children/Other Relatives Related Companies/ Trusts
Primary Beneficiary
“Hires & fires” trustee & approves any exclusion of beneficiaries Charities/ Religious Bodies Class of potential beneficiaries
We also recommend that you each execute enduring powers of attorney in favour of trusted persons to ensure that, in the event of your incapacity, persons of your choice can make legal and financial decisions on your behalf. Your estate planning lawyer will advise you more specifically on powers of attorney.
Step 5 — Strategy In light of all of the issues discussed above, subject to more specific legal and taxation advice, we recommend that you pursue the following estate planning strategy: 1. Acquire the recommended levels of life insurance via an appropriate superannuation fund. 2. Implement our recommended investment plan via an appropriate discretionary trust. 3. Execute wills that establish testamentary trusts for the survivor of you. 4. Execute enduring powers of attorney in favour of appropriate persons. Step 6 — Implementation We confirm we have arranged an appointment for all of us to meet with your estate planning lawyer on 24 February 2003. She will attend to advise you on the terms of your current trust deed, and will draft wills that establish optional beneficiary testamentary trusts for you, and
We further confirm that we have arranged an appointment for all of us to meet with your risk advisor immediately following our appointment with your lawyer, in order to attend to putting your additional life insurance into place. If you elect to proceed with a self-managed superannuation fund, we will order the documentation from our preferred supplier. Alternatively, we will arrange for your risk advisor to purchase your insurances to be acquired through the ABC Fund. We will then meet with you to put the appropriate death benefit nominations into place. Once your trust structures have been established, we will attend to the implementation of your investment plan. If you would like us to provide the lawyer and the risk advisor with any necessary information, please sign the Authority to Provide Confidential Information attached and return it to us. Step 7 — Ongoing review We confirm we will review this plan at least annually. You need to let us know if there are material changes to your circumstances or objectives, in order to enable any further necessary reviews to be carried out. Authority to Provide Confidential Information We, ……………………………….. and ………………………………… hereby authorise [name and firm of financial advisor] (‘my planner’) to provide ………………………………… of …………………………………, Solicitors (‘my lawyer’) with a copy of our financial plan dated …………………………. and a copy of our estate plan dated ………………………………. I also authorise my planner to provide my lawyer with any constituting documents and financial records of the ………………..Family Trust and the …………………………… Superannuation Fund as is necessary to enable my lawyer to prepare my estate planning documentation.
