We should all plan for our future. Certainly, we should all have a current will, especially those of us who need to make special arrangements for the care of children or pets. Many of us would also benefit from making a formal arrangement to account for a time when we could find ourselves unable to make our own decisions. These arrangements have different names according to where you live in Australia, but they are alike in that they give authority to someone we trust to make decisions – whether financial or personal – in our best interests.

However, it is important to understand that these arrangements for the future can only be put in place while you have the necessary mental capacity. Your loved ones cannot make a will on your behalf or appoint a power of attorney or guardian if you begin to lose capacity to make decisions for yourself.

What Is the Presumption of Capacity?

You need legal capacity to make decisions when making a will, buying or selling property, taking out a loan or investing money, making a power of attorney, appointing a guardian, or entering into a contract.  “Capacity” requires the ability to understand the facts, evaluate the choices and their consequences, and make a decision based on a reasoned assessment.

In Australia there is a basic legal presumption that every adult has the mental capacity to make legal decisions for themselves. (This contrasts with the presumption that children lack this capacity and cannot make important decisions without the input of their parents or guardians.) However, this presumption of mental capacity in adults can be rebutted if there is evidence that the adult does not have the necessary decision-making ability. An adult may not have mental capacity to make certain decisions due to a lifelong intellectual disability, an acquired brain injury, an age-related cognitive condition, or a mental illness.

How Do You Determine If Someone Has Capacity?

Unfortunately, it is not an easy task to determine if someone has mental capacity. In fact, there is not even a single legal definition of what constitutes “mental capacity”. This is because different forms of capacity are needed to make different types of decisions.

The lack of a single definition of mental capacity can make it difficult for everyone involved to determine if someone has the capacity to make a particular decision. However, there are some general principles that can help clarify what is meant by legal capacity, and what happens when there is a question about the legal capacity of an adult.

What Capacity is Required?

It is important to understand that capacity is not a diagnosis, where someone is assessed as “incapable” and is then unable to make any legal decisions. Rather, if there is a question about the capacity of a person, then an assessment is made on a case-by-case basis as to whether the person has the capacity for each particular decision. This assessment is often made by the solicitor involved in the legal matter and is usually based on expert advice from a medical report.

For instance, if someone approaches a solicitor to make a will, the solicitor starts by assuming that the person has the necessary capacity. If there is evidence to rebut this presumption (such as the person has difficulty understanding the purpose of a will when it is explained to them) then the solicitor may ask the person to obtain a medical assessment. This assessment will focus on the specific question: Does this person have the capacity to make a will?

Some legal decisions require more capacity than others. For instance, it is broadly understood that a person requires more capacity to manage all of their financial affairs than to simply make a will. Conversely, a person who is deemed incapable of making a will may still have the capacity to revoke an existing will; and someone with the capacity to make a will may not be able to appoint an enduring power of attorney. These comparisons are based on the complexity of the information that the person must be able to understand and evaluate to make the decision that is right for them.

What Can I Do for My Loved One?

Solicitors often have requests from someone who wants to be appointed as the power of attorney for a loved one who is losing capacity. It is important that everyone involved understands that only the person who is the subject of the power can appoint the attorney, and they must do this while they still have the capacity to make the decision.

It is also worth noting that appointing a power of attorney is considered a complex decision, at least relative to decisions such as making or revoking a will. This is because the decisions contained in a will cannot harm the will-maker but a power of attorney exposes the person to a risk of harm and exploitation.

If you have a loved one who has lost capacity to manage their own affairs, and they do not have arrangements in place to have someone make a decision for them, then you will need to seek an order from the Tribunal in your state or territory to give you (or someone else) the authority to make decisions for them.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

When someone dies, their assets are usually distributed according to their will. The person responsible for managing and distributing these assets is the “executor” of the deceased estate. In some cases, a will appoints more than one person to act as executor, and these individuals normally need to work cooperatively to execute the duties of the role.

As with any complex and potentially emotional task, the administration of a deceased estate can give rise to conflict and disagreements. This is particularly true when executors are also beneficiaries of the estate, and their administrative decisions impact on their inheritance under the will.

Common causes of disputes between executors

Of course, disputes between executors can arise for any number of reasons, including simple personality clashes. However, there are some scenarios that arise commonly. These include:

Disputes over the meaning of the will

Disputes can arise if the executors disagree over the interpretation or validity of the deceased’s will. Some common issues that may arise include:

• If the will is unclear or ambiguous, the executors may have different interpretations of the deceased’s intentions.
• If one executor believes that the will is invalid and the other does not, they may challenge it in court.
• If the will does not specify how the assets should be distributed, the executors may disagree on how to divide them.

Disagreements over the management of the estate

In some cases, executors may disagree over how to manage the estate during the administration period. For instance:

• One executor may believe that assets should be sold to generate funds for the estate, while the other executor might disagree.
• Executors may have different opinions about whether certain debts should be paid off before assets of the estate are distributed.
• One executor may wish to hire a professional (such as a lawyer or accountant) to assist with the estate, while the other executor does not wish to incur the expense.

Disagreements over the distribution of assets

In some cases, executors can disagree over how to distribute the assets of the estate. This may happen because:

• Executors have different views about the worth of particular assets.
• One executor believes that a particular asset should go to a certain beneficiary, while the other executor disagrees.

How to avoid disputes

It is far better to avoid a dispute in the first place, rather than try and resolve a dispute after it has become entrenched. Here are some tips for executors to help prevent a dispute:

Act impartially

As an executor, you have a duty to act impartially and in the best interests of the estate. You should avoid any conflicts of interest and make decisions that are fair and reasonable. By acting impartially, you can help build trust with the other executors and work towards a resolution of the dispute.

Keep communicating

Disputes can arise because one executor has different expectations about how communications should occur during the administration. In some cases, executors may simply not communicate effectively, which can lead to conflict. This might look like one executor making a decision without consulting the other, or making a decision without full transparency.

Keep accurate records

 Keeping accurate records of all estate transactions can help prevent misunderstandings and disputes. You should keep a record of all communications, decisions, and financial transactions, and make sure that all executors have access to these records. This can help ensure that everyone is on the same page and can prevent disputes from arising in the future.

Managing a dispute

 Once a dispute arises between executors it can be challenging and stressful to continue the estate administration. However, there are steps you can take to try to resolve the dispute and move forward with the estate administration:

Identify the source of the disagreement

The first step in managing a dispute between executors is to identify the source of the disagreement. By understanding the underlying cause of the dispute, you can begin to work towards a resolution.

Seek legal advice

A lawyer with experience in estate administration can provide guidance on managing disputes between executors. In many cases, both parties are happy to follow the decision of a neutral third party.

Consider mediation

Mediation can be a useful tool for resolving disputes between executors. Mediation involves a neutral third party working with both sides to reach a mutually acceptable solution. Mediation can be a less confrontational and more cost-effective alternative to going to court, and can help ensure that all parties’ interests are considered.

Consider removing an executor

If one executor is causing significant problems and cannot be reasoned with, it may be necessary to remove them from the estate administration. In some cases, it is possible to remove an executor through a court order. However, removing an executor should only be considered as a last resort, as it can lead to further disputes and delays in the estate administration.

Conclusion

As with any complex and potentially emotional task, the administration of a deceased estate can give rise to conflict and disagreements. A lawyer can help you understand your rights and obligations as an executor and can represent you in court if necessary.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

One of the most loving things that you can do for your family is make plans for what happens after you die. This is particularly important if you have children or vulnerable adults who depend on you financially. A testamentary trust might be the right tool to help you look after those you love.

What is a testamentary trust?

As the name suggests, a testamentary trust is made under a will and begins at the death of the testator (the will-maker). This tool allows you to financially support someone without giving that person direct control of the assets.

How is a testamentary trust made?

Your solicitor can draft your trust. Before speaking to your solicitor, you should think about what you want to include in the trust (the assets or capital), who you want to benefit from the trust (the beneficiaries), and who you can rely upon to carry out your wishes (the trustee or trustees).

A common arrangement for parents of young children is to incorporate all assets (including property and superannuation) into a trust for the benefit of their children. In that scenario the trustees might also be nominated as the guardians of the children.

Who should you choose as a trustee?

The trustee is the legal owner of the assets of the trust, so the most important thing is to ensure that the trustee is reliable and honest. Having more than one trustee can be good insurance against fraud or carelessness.

In some cases, the size or contents of an estate may justify an expert trustee. A trustee can be a professional (such as an accountant or lawyer) or an organisation (such as the NSW Trustee and Guardian). However, a professional trustee does need to be paid out of the estate.

What are the advantages of a testamentary trust?

A testamentary trust allows a will maker to control the distribution of their assets for up to 80 years. This lets you look after your children, grandchildren, and even great-grandchildren! There are many advantages to this type of arrangement.

Protection

A testamentary trust can be very prescriptive. You can set out exactly how your money should be divided between the beneficiaries, when the money is given out, and even what it can be spent on. This can prevent the capital from being frittered away by beneficiaries with mental health conditions or addictions.

Because the trustee legally owns the assets of a trust, the funds are generally protected from outside claims against the beneficiaries. For instance, the trust is usually not vulnerable during family law litigation (ie the capital in the trust is unlikely to be split in a divorce). Similarly, the capital is generally insulated from bankruptcy, as well as personal injury and professional negligence claims.

Flexibility

You can choose to make your testamentary trust discretionary. In that case, the trustee has some freedom in distributing the income and capital of the trust. For instance, your trustee may distribute the trust based on the different needs of each child through the years. This allows the trust to evolve over time as circumstances change.

Minimise Tax and Capital Gains

There are tax benefits from testamentary trusts, which you should discuss with your solicitor and accountant. In short, trustees may be able to distribute from a discretionary trust in tax-effective ways, including taking advantage of five-year averaging for capital gains losses. In addition, under a testamentary trust, minor children receive beneficiary tax rates for income from the trust.

Are there any disadvantages to a testamentary trust?

As with all forms of estate planning, a testamentary trust is not right for everyone.

The administration of a trust costs money each year that the trust operates. This will include annual tax and auditing costs and could also include the trustee’s professional fees. For this reason, a discretionary trust is not usually the best option for smaller estates.

A testamentary trust can be challenged by those who wish to receive immediate access to their inheritance. Regardless of whether the claim is successful, the process will cost the estate additional legal fees and may cause family conflict. A testamentary trust always involves a degree of ongoing interaction between the trustee/s and the beneficiary/ies. As with any family dynamic, this can be a source of tension and conflict.

Finally, income from a trust is used when calculating income for Centrelink income support benefits (although currently the assets of a trust are not used to determine eligibility under the asset test).

Conclusion

There are many benefits to using a testamentary trust to protect your loved ones. This form of estate planning allows you to protect your estate against outside claims and ensure that your wealth is used to benefit those you love. There are some disadvantages to choosing a testamentary trust, so it is important to speak to your solicitor and accountant before deciding whether this option is right for you.

This information is for general purposes only and we recommend you obtain professional advice relevant to your circumstances.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

In Australia, there are legal avenues available to individuals who wish to contest a will or challenge the distribution of an estate. Although regrettable, such disputes are often unavoidable and sometimes essential to ensure fair outcomes. Understanding these legal processes and the reasons estate disputes arise can help individuals navigate these challenging situations.

Validity Challenges 

One avenue for disputing a will is to challenge its validity. This can occur if there are concerns about the mental capacity of the deceased at the time of making the will. A challenge based on testamentary capacity questions the deceased’s mental competence to understand the nature and consequences of making a will at the time of its creation.

A will may also be contested if there is evidence of undue influence or pressure on the deceased to change the terms of the will, or simply a failure to comply with the required legal formalities during the will-making process.

Family Provision Claims

In every Australian state and territory, claims can be made by eligible individuals who believe they have not been adequately provided for in the will of a deceased person. These claims seek a court order for a larger share of the estate.

The rules about who is eligible to make such a claim vary across jurisdictions. Generally speaking, however, close family members (spouses and biological or adopted children) are always eligible to make a claim for a greater share of an estate. Other family members, such as stepchildren or former spouses, may also be eligible to make a claim in some jurisdictions.

Family provision claims are usually successful if a close family member has been disinherited and can demonstrate financial need. Such claims are often resolved privately between executors and claimants without involving a court hearing.

Reasons Estate Disputes Arise

Perhaps the most significant reason that estate disputes arise is that there was an existing negative family dynamic. When a loved one passes away, the emotional burden of the loss can complicate already difficult or strained relationships. Disagreements and conflicts between family members, especially in blended families or when there is an estranged relationship, can lead to challenges and disputes over the deceased’s intentions. Family provision claims most often arise when individuals believe that the distribution of assets was fundamentally unfair.

Another reason that estate disputes commonly arise is that the will of the deceased was out-of-date when they died. If a will is not regularly updated to reflect changes in circumstances, such as marriages, divorces, or new family members, it can create confusion and disputes regarding the deceased’s wishes. Similarly, vague or ambiguous terms in a will can often cause disagreements among beneficiaries.

Disputes can also arise if an executor or trustee fails to carry out their duties properly, including mismanagement of the estate, conflicts of interest, or allegations of misconduct.

Minimising Potential Estate Disputes

There are a number of steps that you can take to reduce the chance that your estate will become the subject of a dispute. The first step is to engage the services of a qualified and experienced estate planning lawyer when drafting a will. This will ensure that the will is not only properly drafted, taking into account legal requirements, but that you are prompted to think about potential sources of conflict.

It can also be helpful to establish open and clear communication with family members about the intentions and contents of the will. Discussing decisions in advance can provide an opportunity to flag and address concerns and potential conflicts. Such communication can help manage expectations and reduce the likelihood of disputes.

When drafting a will, it is important to use clear and specific language to avoid ambiguity and confusion. Clearly articulating the intended distribution of assets can help minimise potential disputes.

Regularly reviewing the will and updating it as circumstances change can also help ensure its relevance and accuracy. This includes considering changes in relationships, births, deaths, and significant assets.

In cases of potential disputes, exploring alternative dispute resolution methods, such as mediation or arbitration, can provide a more amicable and cost-effective resolution compared to litigation.

Conclusion

Will disputes and estate challenges can be emotionally and financially draining for all parties involved. Understanding the legal avenues available for disputing a will or estate, the reasons these disputes arise, and implementing strategies to minimise the potential for disputes can help navigate these challenging situations with greater clarity and efficiency. Seeking professional advice and engaging in open communication can contribute to a smoother administration of the estate and reduce the likelihood of prolonged and contentious disputes.

This is general information only and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

It is important to understand the interplay of the laws governing superannuation, tax and succession when planning your estate.

Appreciating how these laws interact can help avoid some common pitfalls in estate planning and may have a significant impact on the net (after-tax) proceeds received by your beneficiaries.

When we refer to ‘death benefits’ we generally mean the aggregate of a deceased person’s superannuation account and the proceeds of any life insurance policies held in superannuation.

These funds are treated in a specific manner after a person dies.

Who gets my superannuation when I die?

Superannuation benefits may not automatically form part of a deceased person’s estate. The common misconception that they do, can have unintended consequences.

The Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) governs superannuation funds and provides that a fund can only directly pay a death benefit to a dependant of the fund member or otherwise, to the estate.

A ‘dependant’ under superannuation laws includes a spouse (including a de facto partner of same or opposite sex), a person with whom the fund member had an interdependency relationship, a child of any age or a person who is financially dependent on the member. A child includes a biological child, adopted child, step child and ex-nuptial child.

An interdependent relationship is one where two persons live together and are in a close personal relationship and one or both provide financial, personal and / or domestic support to the other. This definition encompasses relationships that may not otherwise fit within the narrower definition of dependant such as a parent-child or sibling relationship.

The importance of a Binding Death Benefit Nomination

A Binding Death Benefit Nomination (BDBN) completed by the fund member compels the trustee of a superannuation fund to pay death benefits to a deceased member’s nominated dependant or to his or her estate. Only if the funds are nominated to be paid into the estate, can they be distributed according to the deceased person’s Will.

Completing a valid BDBN is an important step in estate planning. If no BDBN exists then the trustee of the superannuation fund will have discretion in paying the death benefits to a dependant or to the estate. The trustee will consider the relationship of the fund member and the proposed beneficiary and his or her (or their) financial needs. The following example demonstrates the importance of a BDBN.

A person may make a Will leaving his or her entire estate to a certain beneficiary, mistakenly thinking that the estate will automatically include the value of death benefits.

If no BDBN is in place, the trustee of the superannuation fund will have discretion to pay the benefits to an SIS-defined dependant who may not be the same person as the one intended to benefit under the Will.

Alternatively, a BDBN may be in place that directs the fund to pay benefits to a different person (an SIS-defined dependant). In this case, where there is an inconsistency between the BDBN and the terms of the deceased’s Will, then the BDBN will prevail and reduce the gift provided in the Will to the extent of the death benefits payable.

Either way, the result can lead to very different and unintended outcomes than intended by the Will-maker.

Death benefits and tax

When planning your estate, it is also important to understand the tax implications on the payment of death benefits to your beneficiaries.

The Income Tax Assessment Act 1997 (Cth) which governs the payment of tax, defines the term ‘dependant’ differently than the SIS Act. A dependant under taxation law does not include financially independent adult children. This means that although adult children can receive death benefits directly from a superannuation fund (as a SIS-defined dependant), they will need to pay tax on the taxable portion of those funds. Similarly, a recipient of death benefits (from funds directed to the estate via a BDBN) who is neither an SIS-defined dependant nor a dependant for tax purposes, will be taxed.

Conversely, tax-dependant beneficiaries (a spouse or dependent child under 18 years) will generally receive death benefits tax free.

This is an important consideration in estate planning and guidance by a financial professional and lawyer can make a significant difference to the net proceeds received by your loved ones after you die.

Disputes over death benefits

A person who believes death benefits have been wrongfully paid, and that he or she has an entitlement to the funds, may apply for an internal review by the deceased member’s superannuation fund within 28 days of being notified of the decision.

An aggrieved person will need to set out the reasons for the claim and provide supporting evidence of his or her relationship with the deceased.

If not satisfied with the decision reached by the internal review, the person will have a further 28 days after notification of that decision, to lodge a complaint with the Australian Financial Complaints Authority (AFCA). The AFCA will only review complaints concerning regulated funds (i.e. not self-managed superannuation funds).

Legal advice and guidance is recommended when challenging the payment of death benefits.

Key points

• It is important to consider the way death benefits are treated when a fund member dies, and to plan your estate accordingly.
• Superannuation funds are legally required to pay death benefits directly to an SIS-defined dependant or in the absence of such a dependant, to the estate.
• A valid BDBN nominating a dependant beneficiary or your estate will circumvent the superannuation fund’s discretion and ensure your intended beneficiaries receive these payments.
• The tax consequences on death benefits will vary depending on your nominated beneficiaries. Assets from your estate can be distributed in ways that may result in better taxation outcomes for the recipients – good estate planning advice can help maximise the overall benefits received by your beneficiaries.
• In some circumstances, the payment of death benefits to a certain beneficiary may be challenged. An estate planning lawyer can help with strategies to reduce the potential for future family provision claims.

Conclusion

Understanding the way superannuation death benefits are treated when a person dies is an important step in estate planning, particularly when these funds comprise a large portion of your estate.

This information is for general purposes only and you should obtain professional advice that is tailored to your individual circumstances.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

A Financial Agreement is an effective tool for couples in managing their estate planning. Financial Agreements allow couples to pre-determine what they quantify as a fair distribution of their finances and assets, in the event of a relationship breakdown, death of one party, or mental illness.

What is a Financial Agreement?

As mentioned above, a Financial Agreement is an effective tool that helps couples determine ownership of assets and/or liabilities of their marriage or de facto relationship. Financial Agreements can also help ensure your affairs are in order for the remainder of your lifetime and after your death, so as to minimise tax burden, maximise the protection of your assets and ensure that ultimately the right people benefit from your wealth.

Are all Financial Agreements binding?

A Financial Agreement must satisfy certain requirements to be binding;

• both parties must sign a Financial Agreement;
• each party must obtain independent legal advice before signing;
• your individual family lawyer must sign a statement confirming they gave you independent legal advice and provide a copy of this to your partner and their solicitor;
• it must be clear that the Financial Agreement has not been terminated by any of the parties and has not been set aside by the court.

To ensure your Financial Agreement is legally binding, we recommend you speak to one of our experienced family lawyers.

Why is a Financial Agreement beneficial?

Financial Agreements are generally beneficial for anyone, especially for:

• Couples who are bringing assets to a new relationship, especially where this is a subsequent marriage/de facto relationship. If one of the parties has children from a previous relationship, a term can be included in the Financial Agreement stating that assets are to be divided upon one of the parties’ death as if they were separate. This should also be reflected in your Will.
• Children who are likely to receive a significant inheritance upon their parents’ passing. A Financial Agreement will help parents preserve this inheritance for their child, in the event of their child’s relationship with their spouse or de facto partner ending.
• ‘Generational wealth transfer’ – this occurs where parents are preparing to retire and hand over the family business to their child and their child’s partner. The Financial Agreement in this case is designed to protect the family business that has been in the family for many years.

A Financial Agreement is generally more cost-effective than attempting to negotiate a property settlement and possible court proceedings post-separation. A Financial Agreement will continue to operate despite the death of a party and will operate in favour of, and be binding on, the legal representative of that party.

For further information on the advantages and disadvantages of a Financial Agreement, we recommend you speak to one of our experienced family lawyers.

How does a Financial Agreement affect your estate?

A Financial Agreement predetermines the financial outcome of a relationship when it breaks down, and consequently removes the discretion of the Court to divide a couple’s assets. This means that parties can enter into a relationship secure in the knowledge that if they separate, each party will preserve and protect what they brought into the relationship. Financial Agreements should also be mirrored in the parties’ respective Wills.

A Financial Agreement binds the estates of married and de facto couples, meaning that if you lose mental capacity or die, your estate is still bound to honour the terms of your Financial Agreement for division of your finances and assets.

Conclusion

A Financial Agreement can serve as a safety net and is an effective tool for estate planning. If you do not end up needing to use it, you have lost nothing, however it will give you peace of mind about you and your loved ones’ future.

There are various requirements that must be met for a Financial Agreement to be legally binding and the area of law regarding Financial Agreements can be complex, this is why we always recommend obtaining legal advice from an experienced family lawyer.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Are you an executor of a Will? Before administering the estate, you should understand that this role involves risks such as personal liability for the expenses of administering the estate.

You also should be aware that you may be entitled to commission for your ‘handy work’ in administering the deceased’s estate. It is important to understand the methods in which commission is determined to ensure you are paid a correct and fair amount.

Can an executor of a Will receive commission?

An executor of a Will is entitled to charge a reasonable commission for administering the assets of the deceased’s estate. However, executors are not automatically entitled to commission for their work and will need to make an application to the Supreme Court for commission. Alternatively, if all residual beneficiaries of the Will are adults, they can reach a unanimous agreement on the amount of commission to be paid. This agreement should be in writing and signed by all beneficiaries.

How is commission determined?

The amount of commission paid to an executor ranges from 1 – 3% of all assets less all liabilities, which is referred to as the ‘corpus’. For example, an estate is worth $1.5 million. After the sale of the property, payment of outstanding mortgage, funeral and other estate administration expenses, $1 million remains as part of the estate. This amount is referred to as the ‘corpus’.  In this scenario, the executor would be entitled to a commission of approximately $10,000 to $30,000. Additionally, an executor may earn up to 6% of income earned during the administration.

The Supreme Court may also determine the amount of commission paid to an executor by considering the following factors:

• size of the deceased’s estate;
• type of care and responsibilities required of the executor;
• the amount of time an executor has invested into performing their duties;
• the care and diligence shown by the executor in performing their duties.

If an executor is a beneficiary under a Will, this does not mean they cannot also make a claim for commission. The Court will look at how much has been left to the executor as a beneficiary and will adjust any commission accordingly, if granted.

To ensure you receive the correct and fair amount of commission for acting as executor, we recommend you speak to one of our experienced lawyers.

Personal liability

Executors of a Will must ensure they comply with the terms of the Will and relevant legislation when administering the estate.

An executor’s duty to finalise the deceased’s tax affairs is possibly one of the most underestimated tasks. If an executor does not properly carry out their duties in this regard, they run the risk of becoming personally liable for the payment of the deceased’s tax liabilities. Therefore we strongly recommend executors obtain legal and accounting advice at an early stage.

What is usually involved in finalising a deceased’s individual tax affairs?

The executor is expected to notify the Australian Taxation Office (ATO) of the deceased’s death and arrange for any outstanding tax returns to be prepared and lodged. They must also arrange a final tax return for the deceased to be prepared and lodged and arrange payment of any tax liabilities.

An executor’s tax obligations under a Will may become more onerous if the deceased had any involvement with companies or trusts, operated a business or was the trustee or member of a self-managed superannuation fund.

Executors should also understand that the estate’s tax affairs are different from the deceased’s individual tax affairs. Estates are treated as trusts for tax purposes, so an executor should:

• obtain a tax file number for the estate;
• arrange and ensure that tax returns are prepared and lodged with the ATO; and
• ensure payment of any tax liabilities.

The above can involve a substantial amount of time as the executor would need to gather information and documents in order to finalise the deceased’s individual tax affairs. This could become an onerous task especially if the deceased had a number of outstanding tax returns, did not use an accountant, or leave sufficient records and paperwork.

Therefore it is imperative for an executor to obtain appropriate accounting and legal advice either before or at an early stage of the estate administration. It will also help to reduce the risk of personal tax liabilities.

Conclusion

It is clear from the above discussion that it is imperative for an executor of a Will to seek legal and accounting advice to prevent becoming personally liable for the deceased’s outstanding tax debts. It will also assist the executor is administering the Will properly and efficiently.

This information is for general purposes, and you should obtain professional advice relevant to your circumstances. A lawyer who is experienced in this area will also be able to advise as to the amount of commission an executor is entitled to for their effort in administering a Will.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

All jurisdictions in Australia provide statutory rights for eligible persons to contest a Will on the basis that they have not been given adequate provision by the testator for their proper maintenance, education and advancement in life. These are commonly known as family provision claims.

An eligible person generally includes the spouse or de facto partner of the deceased, a child of the deceased, or certain persons who were dependant on the deceased.

If a family provision claim is successful, the Court has the power to determine the appropriate provision for the claimant and to order an adjustment from the deceased’s estate. The result is that one or more beneficiary’s interests under the Will are reduced to satisfy the claim.

Will disputes and rural properties

Family provision claims where the main assets of an estate are tied up in rural interests such as a family farm can be complex. Often there are insufficient ‘non-farming’ assets to satisfy a successful claim and a major beneficiary may need to raise sufficient funds to pay out the claimant, or be forced to sell all or part of the farming enterprise.

Whilst a provision ordered for a worthy claimant may be morally justified, the disposal of one or more properties used in the farming enterprise can have a significant impact on its viability and on the main beneficiary’s financial future.

A claim may arise where a testator provides equally for his or her children despite only one of those children having worked continuously on the farm for many years. This child may have undertaken study or training specific to the management of the farm whilst the other children pursued other careers. The likely claim could be framed on grounds that there was an expectation by that child that he or she would inherit the family farm or a greater share than the other children.

Alternatively, the claim may be the result of a testator leaving the family farm to the child (or children) who worked the farm whilst other children left. The testator may wish to reward the child who, through his or her labour (and often with little remuneration) contributed substantially to the farm’s continuance. The farm usually constitutes the bulk of the estate and when left to only one child, results in an unequal division between the children.

Such was the case in Salmon v Osmond [2015] NSWCA 42 which involved an appeal from the original Court’s decision to award one of two family provision claimants (daughters of the deceased) further provision from the estate.

The estate comprised mainly grazing properties, the subject of a farming enterprise. Survived by his wife and seven children, the deceased left the bulk of his estate to his widow and one son (aged 48).

The successful claimant (in the original decision) was left $10,000 under the Will which was increased by further provision of $200,000. The payment was to come out of the son’s share which may have required that he sell one or more of the grazing properties forming part of the farming enterprise. The decision was appealed.

The testator’s Will included an explanation regarding any perceived preference shown towards the son. It indicated that the son had assisted in the farm’s operations for many years and for little reward and that such assistance had allowed the testator to amass the assets acquired over his lifetime. Further, the testator stated that the other children had been assisted over the years and had ‘benefited as close to equal as possible in monetary value’ in the distribution of his assets.

The original decision was overturned by reducing the claimant’s award of $200,000 to $50,000. The claimant was also required to pay her own costs in the proceedings.

Factors in considering a contested Will – the rural issues

In deciding a family provision claim, the Court considers a range of factors including the financial position of the claimant, the circumstances, the financial position and needs of other beneficiaries, the size of the estate and the relationship between the deceased person and the claimant.

Where a dispute concerns rural assets, consideration of these factors might encompass:

• The statements made in a Will, which will be admissible and relevant in explaining how a testator came to a decision on the disposition of assets, however are not determinative if it is found that a claimant was not left with adequate provision.

• The Court’s reluctance to re-write a Will and to make orders that do not uphold the wishes of the testator.

• The lifelong efforts and contributions made to a farming enterprise which will be given considerable weight – in this case the son was the only one of seven children who remained on the farm and continued working on it for little remuneration. His efforts over several years contributed significantly to the testator’s ability to continue running the farm and acquire assets.

• The competing financial interests of the claimant and the beneficiaries. In this case, although the claimant was in a very modest financial position the son’s financial future was likely dependent upon the profitability of the farming enterprise. The Court will acknowledge a moral right to inherit the farm, emanating from several years’ contribution to its viability at the cost of pursuing other paths.

If a family provision claim is successful, the Court will try to avoid disturbing a farming enterprise by making provision from other estate assets. However, if a claimant’s needs outweigh those of the beneficiaries inheriting the farm, and other provision is not possible, there is no rule or principle to prevent the sale of the family farm to satisfy that provision.

Conclusion

The legal costs in Salmon v Osmond exceeded $160,000; a significant proportion of the estate’s overall assets.

Despite attempts to negotiate and settle the claim the matter proceeded to Court incurring additional legal costs. These costs could have gone a long way towards satisfying the further provision of $50,000 finally awarded to the claimant.

The testator’s explanation in his Will, although not determinative, was helpful in upholding his wishes to ‘favour’ the one son that assisted on the farm throughout his life.

Rural interests in a deceased estate can be particularly complex. When drafting a Will, careful consideration is necessary to safeguard the continuance of a farming enterprise and to reduce the potential of a family provision claim.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Having worked hard over the years to accumulate wealth, most people want to ensure that their assets are available for future generations and not squandered by a frivolous beneficiary or accessible to an unintended recipient.

If you have acquired reasonable assets, have a blended family, or at-risk beneficiaries, then having a testamentary trust in your Will may significantly benefit those inheriting from your estate.

You may have heard of a testamentary trust in the context of financial or estate planning. But what is a testamentary trust, why do people have them and, more importantly, how can a testamentary trust benefit your family?

What is a testamentary trust?

A testamentary trust is a trust contained in a Will that comes into effect after the Will-maker (testator) dies. A trustee, pre-appointed in the Will by the testator, manages the trust which is usually established as a ‘discretionary trust’.

The discretionary nature of the trust means that the trustee may choose how and when the deceased’s assets are distributed to the beneficiaries. The beneficiaries or classes of beneficiaries are pre-determined in the Will and trust.

The flexibility and control in distributing assets to beneficiaries has many potential benefits and can ensure assets are retained for future generations. This flexibility and control is key to accessing the benefits available through a testamentary trust.

Favourable taxation treatment

Determining when and how income and assets are distributed from a testamentary discretionary trust can have a significant impact on how beneficiaries are taxed.

Income can be divided between beneficiaries to take account of their individual tax thresholds and financial circumstances.

For example, children under 18 years receiving distributions from the trust can generally access the adult tax-free threshold (presently $18,200), rather than being taxed at the (higher) flat rate which would normally apply to minors who receive ‘unearned income’. This can result in considerable tax savings with tax-free or minimally-taxed income distributions used to pay for children’s education, health and other expenses.

The flexibility to retain assets rather than transferring them at the time of the testator’s death can also be advantageous. The trustee’s discretion to choose the recipient of a major asset (such as real estate) and when that asset should be transferred can take into account Capital Gains Tax (CGT) issues and, with careful planning, avoid or postpone a liability for CGT. The same principle applies in determining if and when to sell an estate asset.

Protection of assets

A testamentary trust is ideal for protecting assets from going to those who were not intended to benefit from the estate, such as an ex-partner of the testator’s child or a creditor of a bankrupt beneficiary. Provided the trust is structured properly, in many cases assets will not be available to these third parties and can be preserved for those with whom a testator intended to share his or her wealth.

This protection is available because assets held in a testamentary trust are not ‘legally’ owned by any individual – in other words the beneficiaries have no ‘proprietary’ interest in the assets. Accordingly, the assets are not considered a resource of the beneficiary and may be exempt from a claim by an ex-partner in family law proceedings or a creditor of a bankrupt beneficiary.

By way of practical example, if a beneficiary was facing bankruptcy a trustee could refrain from making a distribution from the trust to that person, as doing so would only make the asset accessible to a creditor. By retaining the asset in trust, it is protected and does not constitute available property of the bankrupt beneficiary.

The protection described above also applies to ‘at risk’ or vulnerable beneficiaries such as those with disabilities, gambling or drug addictions. In these cases, distributions can be carefully monitored and managed.

Testamentary trusts for blended families

In some circumstances, a modest estate may also benefit from a testamentary trust. This may be so where the testator is part of a blended family, particularly if it is expected that estate assets are likely to increase over time.

The typical challenges faced by a testator within a blended family are the competing interests of past and present partners, biological children and step-children. Whilst it is likely that a testator wants to provide for the current partner, there may also be his or her own children from a previous relationship, step-children and / or children from the present relationship to consider.

The flexibility of a testamentary trust, enables the testator to include a set of provisions to apply if the current partner survives him or her, and an alternate set of provisions which will apply if the current partner does not survive the testator.

The trust can be drafted to provide immediately for the current partner (through a right of residence and income) whilst preserving assets for residual beneficiaries (such as the children). The objective here is that the testator’s assets can be immediately utilised by a first-generation beneficiary, whilst being preserved for future (residual) beneficiaries.

Summary

A testamentary trust provides flexibility in distributing your estate and enables wealth to pass to future generations. Beneficiaries may benefit from considerable tax savings and the trust can effectively safeguard assets from third party claims and protect at-risk beneficiaries.

A trust however, is a complex structure requiring effective management and administration. If you are considering having a testamentary trust in your Will, you should seek legal advice to ensure it is properly structured and the perceived benefits outweigh the likely costs of ongoing management.

The trustee will have a key role in the ongoing control of your estate assets. Care must be taken in appointing an appropriate person or entity. Although it is common to appoint the executor or a major beneficiary, this may not be in your best interests. A discussion with your lawyer setting out your family circumstances and objectives will assist in making the right choice.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Probate is a grant made by a Court that ‘proves’ the Will of a deceased person and vests title to estate assets in the executor/s, allowing the executor to deal with the deceased’s estate.

As the legal personal representative of the deceased, the executor must determine the assets and liabilities, liaise with debtors, creditors and beneficiaries, sell, transfer and distribute assets and finalise the estate in accordance with the Will.

The executor is often guided by a lawyer who provides professional advice to minimise liability and to deal with any complications or claims made on the estate.

If the deceased died without a valid Will or the Will appointed an executor who is unable to fulfil that position, an interested person (usually a spouse, partner or child) may apply for letters of administration.

This article explains the process of obtaining a grant of probate where there is a valid Will, and what is involved in administering the estate. The information is general only and we recommend obtaining professional advice relevant to your particular circumstances.

Is a grant of probate necessary?

There is no statutory requirement to obtain probate and a grant may not be necessary for small estates. Property held jointly may be transferred to the name of the surviving owner/s by lodging the appropriate documents with the relevant authority.

Banks, financial institutions and share registries may release small amounts without probate on production of the death certificate and proof of those entitled to the funds, and an indemnity releasing them from future claims. The relevant enquiries should be made with each entity.

Unless the estate is small, simple and there is no risk of a claim being made against it, an executor will generally seek an application for a grant of probate. A lawyer can advise whether a grant of probate is necessary or recommended.

Process

A notice of intention to apply for a grant must be published at least fourteen days before the application is made to the Supreme Court. The notice is required to warn interested parties (creditors, family provision claimants) of the application and provides an opportunity for the relevant claim or objection to be lodged.

The following documents are filed with the Court:

• Application for Probate;
• Original Will and death certificate;
• Affidavit in support of Application;
• Affidavit of Publication and Service.

The affidavit sets out the relationship between the deceased and the executor, identifies the Will and death certificate and, if relevant, vouches for the deceased’s signature on the Will. The affidavit may include specific information to explain irregularities, such as different spellings of names or the death of a beneficiary.

Sometimes additional documents will need to be prepared to explain unusual circumstances and an estate lawyer can advise in this respect.

Once probate is granted, the executor may commence administration of the estate.

Dealing with assets held outside of Queensland may require the grant to be ‘resealed’ in the relevant jurisdiction. This is a procedural matter in which a copy of the original grant, together with a summons and supporting documentation is filed with the relevant Court in the jurisdiction where those assets are held.

Protecting executors

Executors may be liable for losses sustained by beneficiaries through negligence or delay in administering an estate but must also ensure that all claims are considered before distributing estate assets. To protect an executor from liability for potential claims by creditors, a notice is published providing a specified timeframe for a party to notify the estate of any claim prior to its distribution.

The possibility that a family provision claim may be made on the estate must also be considered. In such cases it may be prudent to wait for six months after the date of death before distributing assets.

An estate lawyer will explain the most appropriate means of protecting you as executor, from liability.

Administering the estate

The Will should be examined to ensure the distribution is in accordance with its provisions. Understanding the correct interpretation of a Will’s terms can be confusing and an estate lawyer will assist with explaining the proper construction of the Will.

The executor and beneficiaries should receive appropriate legal or financial advice when transferring / receiving assets to ensure that stamp duty, capital gains, land tax and other taxes are considered.

Executors should also be mindful of their duty to protect and preserve estate assets and to ensure that appropriate insurance, where relevant, is in place.

Estates that include business interests will require additional attention – the business may need to be wound up, or the interests sold or transferred to a beneficiary.

Prior to distributing assets, the executor will need to be certain that:

• the debts of the estate have been ascertained and paid in accordance with the statutory order for payment of debts;
• funds are retained in the estate for contingent expenses such as taxes and other fees;
• all beneficiaries have been identified and provision (if relevant) made for holding a minor beneficiary’s share in trust;
• the estate is not distributed until all creditors are identified and the requisite timeframe has expired for an eligible person to make a family provision claim;
• a proposed distribution statement has been prepared and approved, particularly where there are multiple beneficiaries;
• beneficiaries who are receiving insurable assets have arranged insurance cover in their own names before cancelling existing policies.

Conclusion

Applying for probate and administering an estate is an important function, and for many executors and beneficiaries, the process can seem tedious and daunting.

However, these processes are in place to ensure that executors and beneficiaries are protected and that the testamentary wishes of a deceased person are properly carried out.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.