Podcast
Questions and Answers
What is a valid reason for contesting a will under common law?
What is a valid reason for contesting a will under common law?
Who is NOT typically eligible to make a claim under the Testator’s Family Maintenance Act 1912 (TFM claim)?
Who is NOT typically eligible to make a claim under the Testator’s Family Maintenance Act 1912 (TFM claim)?
Which statement is true regarding the three-year rule for tax on deceased estates in Australia?
Which statement is true regarding the three-year rule for tax on deceased estates in Australia?
What type of Power of Attorney remains valid even if the donor loses mental capacity?
What type of Power of Attorney remains valid even if the donor loses mental capacity?
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What kind of trust gives beneficiaries an entitlement to be considered for distributions but does not guarantee them?
What kind of trust gives beneficiaries an entitlement to be considered for distributions but does not guarantee them?
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In which situation may the legal costs of contesting a will be covered by the estate?
In which situation may the legal costs of contesting a will be covered by the estate?
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Which statement regarding a general Power of Attorney is accurate?
Which statement regarding a general Power of Attorney is accurate?
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What must be true for a Power of Attorney to be valid at the time of execution?
What must be true for a Power of Attorney to be valid at the time of execution?
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What is the primary reason the SGS needs to work in conjunction with Social Security and the Age pension?
What is the primary reason the SGS needs to work in conjunction with Social Security and the Age pension?
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Who can challenge the distribution of a deceased person's estate based on a right to maintenance?
Who can challenge the distribution of a deceased person's estate based on a right to maintenance?
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Which demographic trend impacts the need for the SGS to support Social Security?
Which demographic trend impacts the need for the SGS to support Social Security?
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What is a key advantage of being a Complying Superannuation Fund (CSF)?
What is a key advantage of being a Complying Superannuation Fund (CSF)?
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What consequences arise if a Complying Superannuation Fund becomes non-complying?
What consequences arise if a Complying Superannuation Fund becomes non-complying?
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Which of the following is NOT an implication of an aging population on Social Security funding?
Which of the following is NOT an implication of an aging population on Social Security funding?
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What percentage of recent retirees are fully self-funded according to current statistics?
What percentage of recent retirees are fully self-funded according to current statistics?
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What is a significant challenge related to national savings and social expenditure?
What is a significant challenge related to national savings and social expenditure?
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Which regulatory body oversees the regulation of Complying Superannuation Funds?
Which regulatory body oversees the regulation of Complying Superannuation Funds?
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What is the primary purpose that must be stated in each Trust Deed?
What is the primary purpose that must be stated in each Trust Deed?
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Which of the following is NOT a condition under which benefits can be provided according to the Sole Purpose Test?
Which of the following is NOT a condition under which benefits can be provided according to the Sole Purpose Test?
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What is a significant consequence of breaching the Sole Purpose Test?
What is a significant consequence of breaching the Sole Purpose Test?
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Why might the risk of breaching the Sole Purpose Test be higher for small funds?
Why might the risk of breaching the Sole Purpose Test be higher for small funds?
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Which of the following actions might still comply with the Sole Purpose Test?
Which of the following actions might still comply with the Sole Purpose Test?
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How are the majority of small funds structured according to member limits?
How are the majority of small funds structured according to member limits?
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Which of the following is incorrectly aligned with the core benefits stipulated by the Sole Purpose Test?
Which of the following is incorrectly aligned with the core benefits stipulated by the Sole Purpose Test?
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What can be a potential risk of small funds that is less prevalent in larger super funds?
What can be a potential risk of small funds that is less prevalent in larger super funds?
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What is the primary purpose of investment policies?
What is the primary purpose of investment policies?
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What is the most common form of life insurance currently available in Australia?
What is the most common form of life insurance currently available in Australia?
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Which factor is NOT considered when determining the level of cover for Term Life Insurance?
Which factor is NOT considered when determining the level of cover for Term Life Insurance?
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What is key person insurance primarily designed to address?
What is key person insurance primarily designed to address?
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In what scenario might a Buy-Sell Agreement become necessary?
In what scenario might a Buy-Sell Agreement become necessary?
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What is a potential risk associated with a Buy-Sell Agreement?
What is a potential risk associated with a Buy-Sell Agreement?
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Which of the following is NOT a use of life insurance in estate planning?
Which of the following is NOT a use of life insurance in estate planning?
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What is a common characteristic of term life insurance policies regarding terminal illness?
What is a common characteristic of term life insurance policies regarding terminal illness?
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Which of the following best describes a buy-sell agreement?
Which of the following best describes a buy-sell agreement?
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What is a critical consideration for determining the beneficiary of a life insurance policy?
What is a critical consideration for determining the beneficiary of a life insurance policy?
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Which of the following accurately describes moral hazard in insurance?
Which of the following accurately describes moral hazard in insurance?
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What is the primary difference between moral hazard and morale hazard?
What is the primary difference between moral hazard and morale hazard?
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Which principle in insurance necessitates complete honesty in the disclosure of risks?
Which principle in insurance necessitates complete honesty in the disclosure of risks?
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Which of the following types of insurance is specifically designed to provide compensation for the loss of a key employee?
Which of the following types of insurance is specifically designed to provide compensation for the loss of a key employee?
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Underinsurance in Australia refers to which of the following observations?
Underinsurance in Australia refers to which of the following observations?
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Which regulation governs the licensing of life insurance providers in Australia?
Which regulation governs the licensing of life insurance providers in Australia?
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What is NOT one of the common types of insurance mentioned?
What is NOT one of the common types of insurance mentioned?
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Which of the following statements about moral hazard is true?
Which of the following statements about moral hazard is true?
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Which of the following IS NOT a reason why life insurance is important?
Which of the following IS NOT a reason why life insurance is important?
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What factor contributes to the increase in theft risk among insured individuals?
What factor contributes to the increase in theft risk among insured individuals?
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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.