Have you considered your Estate Plan?

We generally do not hesitate to put in place effective strategies for growing and protecting wealth during our lifetime.  But what happens to that wealth on our death? Many people think putting an effective Estate Plan in place is simply a matter of preparing a valid Will.  In reality, however, it is much more than this.

A Will deals only with personally held assets – houses, cars, boats – and will not deal with assets such as superannuation, assets held in family trusts or jointly held assets. It is often the case that the majority of our wealth is not held personally but is instead held in a variety of structures created during our lifetime.

To ensure that the entirety of your estate passes in accordance with your wishes, it is critical that an effective Estate Plan is put in place and reviewed regularly – at least every four years. This Estate Plan should take into account assets held in your personal name, assets held in family and unit trusts, superannuation (including self-managed superannuation funds) and assets held in partnership or through a corporate vehicle.

It is also important to consider ‘how’ your assets should pass to intended beneficiaries.  A ‘simple’ Will generally gifts assets directly to beneficiaries – meaning that any assets bequeathed to that beneficiary will be transferred directly into the beneficiary’s personal name.  Rather than bequeathing assets directly to beneficiaries, there are significant benefits in establishing ‘testamentary trusts’ under your Will allowing beneficiaries to receive their inheritance through a trust structure (similar to a discretionary family trust).

Testamentary trusts provide beneficiaries with maximum flexibility in dealing with their inheritance.  Not only do testamentary trusts provide beneficiaries with asset protection – both in the event of bankruptcy and in respect of family law property proceedings (although the family court has considerable powers to make orders in relation to assets held in a trust) – they also provide beneficiaries with significant taxation advantages.  In particular:

• beneficiaries have the option of reducing personal income tax by splitting income from investments of their inheritance between a range of family members; and
• children under the age of eighteen who receive income from a testamentary trust will be treated as adults for tax purposes and this will enable significant tax savings for beneficiaries who can split income with minor children (normally maximum rates of tax apply to income which is paid to children under the age of eighteen).

In short, structuring your estate on your death is equally as important as structuring during your lifetime.  By putting an Estate Plan in place, you can be sure that all of your assets will pass to your intended beneficiaries in accordance with your wishes.  You can also minimise the incidence of taxation and reduce the potential for mismanagement of your assets by future beneficiaries.

This article is not legal advice.  It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.