Contesting a Will and TFM Claims
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Contesting a Will and TFM Claims

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Questions and Answers

What is a valid reason for contesting a will under common law?

  • Disagreement among family members
  • Unknown debts of the deceased
  • Public opinion against the will
  • Lack of testamentary capacity (correct)

    • Who is NOT typically eligible to make a claim under the Testator’s Family Maintenance Act 1912 (TFM claim)?

  • Close family friends (correct)
  • Parents of the deceased
  • Surviving spouse
  • Children of the deceased

    • Which statement is true regarding the three-year rule for tax on deceased estates in Australia?

  • Estates are taxed at corporate tax rates during this time.
  • Income earned by the estate is taxed as if it were an individual. (correct)
  • Executors have three years to finalise the estate free of tax liabilities.
  • Beneficiaries are taxed at a higher rate if distributions are delayed.

    • What type of Power of Attorney remains valid even if the donor loses mental capacity?

    <p>Enduring Power of Attorney</p> Signup and view all the answers

    What kind of trust gives beneficiaries an entitlement to be considered for distributions but does not guarantee them?

    <p>Discretionary trust</p> Signup and view all the answers

    In which situation may the legal costs of contesting a will be covered by the estate?

    <p>If the challenge is made within six months from probate and has an appropriate basis</p> Signup and view all the answers

    Which statement regarding a general Power of Attorney is accurate?

    <p>It ceases if the donor loses mental capacity.</p> Signup and view all the answers

    What must be true for a Power of Attorney to be valid at the time of execution?

    <p>The donor must be in a sound mind.</p> Signup and view all the answers

    What is the primary reason the SGS needs to work in conjunction with Social Security and the Age pension?

    <p>There is insufficient time for the SGS to provide adequate income for current retirees.</p> Signup and view all the answers

    Who can challenge the distribution of a deceased person's estate based on a right to maintenance?

    <p>Estranged children</p> Signup and view all the answers

    Which demographic trend impacts the need for the SGS to support Social Security?

    <p>An increasing proportion of retirees relative to the working population.</p> Signup and view all the answers

    What is a key advantage of being a Complying Superannuation Fund (CSF)?

    <p>Tax savings on contributions, earnings, and withdrawals.</p> Signup and view all the answers

    What consequences arise if a Complying Superannuation Fund becomes non-complying?

    <p>It loses tax benefits and faces punitive tax on total fund assets.</p> Signup and view all the answers

    Which of the following is NOT an implication of an aging population on Social Security funding?

    <p>Opportunities for greater investment in infrastructure funded by retiree taxes.</p> Signup and view all the answers

    What percentage of recent retirees are fully self-funded according to current statistics?

    <p>50%</p> Signup and view all the answers

    What is a significant challenge related to national savings and social expenditure?

    <p>Insufficient national savings hinders the ability to fund social expenditures.</p> Signup and view all the answers

    Which regulatory body oversees the regulation of Complying Superannuation Funds?

    <p>APRA.</p> Signup and view all the answers

    What is the primary purpose that must be stated in each Trust Deed?

    <p>Providing retirement benefits to members</p> Signup and view all the answers

    Which of the following is NOT a condition under which benefits can be provided according to the Sole Purpose Test?

    <p>Transfer of benefits to another fund member</p> Signup and view all the answers

    What is a significant consequence of breaching the Sole Purpose Test?

    <p>Tax at 45% on the value of the assets</p> Signup and view all the answers

    Why might the risk of breaching the Sole Purpose Test be higher for small funds?

    <p>Trustees act on behalf of fewer members</p> Signup and view all the answers

    Which of the following actions might still comply with the Sole Purpose Test?

    <p>Providing benefits upon termination of employment</p> Signup and view all the answers

    How are the majority of small funds structured according to member limits?

    <p>They are limited to 6 members or less</p> Signup and view all the answers

    Which of the following is incorrectly aligned with the core benefits stipulated by the Sole Purpose Test?

    <p>Withdrawal of benefits before retirement</p> Signup and view all the answers

    What can be a potential risk of small funds that is less prevalent in larger super funds?

    <p>Greater vulnerability to mismanagement</p> Signup and view all the answers

    What is the primary purpose of investment policies?

    <p>To facilitate the growth of capital by regular premiums</p> Signup and view all the answers

    What is the most common form of life insurance currently available in Australia?

    <p>Term life insurance</p> Signup and view all the answers

    Which factor is NOT considered when determining the level of cover for Term Life Insurance?

    <p>Future investment opportunities</p> Signup and view all the answers

    What is key person insurance primarily designed to address?

    <p>Protecting against loss of valuable expertise in a business</p> Signup and view all the answers

    In what scenario might a Buy-Sell Agreement become necessary?

    <p>When a partner encounters long-term disability</p> Signup and view all the answers

    What is a potential risk associated with a Buy-Sell Agreement?

    <p>Insufficient funds among remaining partners to buy out interests</p> Signup and view all the answers

    Which of the following is NOT a use of life insurance in estate planning?

    <p>High-risk investment funding</p> Signup and view all the answers

    What is a common characteristic of term life insurance policies regarding terminal illness?

    <p>They often permit an advance payment of the total sum insured</p> Signup and view all the answers

    Which of the following best describes a buy-sell agreement?

    <p>A contract mandating partners to buy out each other's interests under specific events</p> Signup and view all the answers

    What is a critical consideration for determining the beneficiary of a life insurance policy?

    <p>The relationship of the beneficiary to the policy owner</p> Signup and view all the answers

    Which of the following accurately describes moral hazard in insurance?

    <p>It occurs when an insured party becomes careless due to the presence of insurance.</p> Signup and view all the answers

    What is the primary difference between moral hazard and morale hazard?

    <p>Moral hazard relates to the insured's intent to cause a loss, while morale hazard relates to carelessness.</p> Signup and view all the answers

    Which principle in insurance necessitates complete honesty in the disclosure of risks?

    <p>Principle of utmost good faith</p> Signup and view all the answers

    Which of the following types of insurance is specifically designed to provide compensation for the loss of a key employee?

    <p>Key person insurance</p> Signup and view all the answers

    Underinsurance in Australia refers to which of the following observations?

    <p>The coverage held is generally inadequate to meet the needs of dependents.</p> Signup and view all the answers

    Which regulation governs the licensing of life insurance providers in Australia?

    <p>Life Insurance Act 1995</p> Signup and view all the answers

    What is NOT one of the common types of insurance mentioned?

    <p>Pet insurance</p> Signup and view all the answers

    Which of the following statements about moral hazard is true?

    <p>It represents a reduced sense of loss because of insurance.</p> Signup and view all the answers

    Which of the following IS NOT a reason why life insurance is important?

    <p>It ensures individuals do not face job redundancy.</p> Signup and view all the answers

    What factor contributes to the increase in theft risk among insured individuals?

    <p>Carelessness stemming from having insurance</p> Signup and view all the answers

    Study Notes

    Contesting a Will

    • People can leave their assets to whomever they wish. There is no legal obligation for equal or fair distribution.
    • Wills can be challenged in court on the grounds of lack of testamentary capacity, undue duress, or incorrect execution.
    • Legal costs for contesting a will can be paid from the estate, but only if the claim is made within 6 months of probate and the challenge is deemed to have a valid basis.
    • The Testator's Family Maintenance Act 1912 allows certain individuals to make claims for adequate provision if they believe the will does not sufficiently support them.

    TFM Claims

    • These claims are limited to surviving spouses, de facto partners, children, parents, and divorced spouses receiving or entitled to receive maintenance.

    Estate Challenges

    • Each state has legislation that allows individuals to challenge an estate if they can demonstrate a right to maintenance from the deceased.
    • Potential claimants include estranged children, unknown children, and long-term carers.
    • The estate's assets are the primary targets of estate challenges.

    3-Year Rule for Tax

    • Australian tax law grants executors 3 years to finalise an estate.
    • During this period, the deceased estate is taxed as an individual, with income subject to standard personal income tax rates.
    • This rule benefits beneficiaries who are already in high income tax brackets as it could lead to lower tax rates for estate distributions.

    Power of Attorney (PoA)

    • A legal document appointing an attorney to act as the donor's agent for matters like signing contracts, managing affairs, and making medical decisions.
    • There are three types: general (non-enduring), enduring (financial or medical), and power of guardianship.
    • General PoAs cease if the donor loses mental capacity, while enduring PoAs remain valid.
    • A donor must have mental capacity to execute a valid PoA.
    • Donors can have multiple PoAs and revoke them at any time.
    • PoAs operate under state law and may require registration in some jurisdictions.
    • PoAs cannot create wills, perform illegal acts, delegate power without explicit permission, exercise the donor's trustee powers, or make lifestyle decisions regarding medical treatment unless specifically authorized.

    Trusts

    • A legal arrangement, not a legal entity, that holds assets for beneficiaries.
    • Fixed trusts have beneficiaries with fixed entitlements based on units held.
    • Discretionary trusts allow beneficiaries to be considered for distributions but do not guarantee them.

    Complying Superannuation Fund (CSF)

    • A regulated, resident fund that meets Superannuation Industry (Supervision) Act requirements and passes the culpability test.
    • CSFs enjoy tax savings on contributions, earnings, and withdrawals.
    • Non-complying funds lose these benefits and face punitive tax, including a 47% levy and potential penalties for non-compliance.

    Sole Purpose Test

    • Regulated funds must be solely for providing retirement benefits to members.
    • This includes benefits accumulating before retirement, benefits on meeting release conditions, and benefits to legal personal representatives upon member's death.
    • The test is strictly enforced and can result in a non-complying status with significant tax consequences.
    • Related benefits, such as life insurance, may be allowed as long as the core purpose focus is on retirement benefits.

    Small Superannuation Funds

    • These funds, with 6 members or less, represent a small number of accounts in the superannuation system.

    Insurance

    • It is a contract that protects against financial losses due to specific events or situations.
    • Key types of insurance include life and health, property, public liability, business interruption, fire, burglary, theft, marine, motor vehicle, and workers compensation.

    Insurance Protection for Individuals

    • Life insurance provides financial protection for dependents in case of death, with term life and permanent options.
    • Income protection policies cover financial losses due to temporary disability, often combined with life insurance.
    • Trauma insurance can be added to life and income protection policies.
    • Key person insurance protects businesses financially due to the loss of a key employee due to death or disability.
    • Insurance cannot protect against job redundancy.

    Life Insurance

    • It minimizes financial impact of death or incapacitation, protecting dependents' income stability.
    • Underinsurance is a significant problem in Australia.
    • Life insurance industry is heavily regulated under the Corporations Act, ASIC Act, Insurance Contracts Act 1984, Life Insurance Act 1995, and Privacy Amendment (Private Sector) Act.
    • Only licensed providers can offer life insurance.
    • The "Big Four" banks are licensed providers.
    • Life insurance policies include investment policies, term life insurance, and endowment policies.

    Term Life Insurance (TLI)

    • Provides a lump sum payment to beneficiaries upon the policyholder's death.
    • The level of cover is determined by factors such as required income for dependents, education costs, mortgages, and other debts.
    • TLI is the most common form of life insurance in Australia.

    Life Insurance in Estate Planning

    • Life insurance plays a significant role in estate planning:
    • Key person insurance
    • Buy-sell agreements
    • Income maintenance for disability or trauma
    • Equalizing bequests for beneficiaries

    Key Person Insurance

    • Protects businesses from losses due to the death or disability of a key employee, including potential sales loss, reduced profitability, and replacement costs.
    • The business funds and owns this insurance.

    Buy-Sell Agreements

    • Contracts between business partners, obligating them to buy out each other's interests in specific events like death, divorce, disability, retirement, or bankruptcy.
    • These agreements prevent beneficiaries from gaining ownership and potentially demanding market value payouts, which the remaining partners may not be able to afford.
    • Essentially ensures the business remains within the existing ownership structure.

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    Description

    Explore the intricacies of contesting a will, including grounds for challenges and the legal implications surrounding Testamentary Family Maintenance claims. This quiz covers rights related to estate distribution and the specific individuals eligible to make claims under relevant legislation.

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