Wills and Estate Planning

Wills

• A legal document that disposes of a deceased estate’s assets.
• Specifies how property is to be dealt with after the death of the testator.
• Provides directions for beneficiaries, including in the event they die before the testator.
• Nominates executors and guardians for minors.
• Includes other specific directions by the deceased.
• Applicable laws include the Wills Act 1997 (commenced 20/7/98), Wills Act 158 (applies to wills made before 20/7.98), and Administration and Probate Act 1958 (contains provisions for distributing assets when there is no will, and challenging a will).

Who Can Make a Will?

• Anyone over the age of 18 who has testamentary capacity (sound mind).
• Exceptions to the age 18 rule include married minors and those authorized by the court.
• "Sound mind" refers to the capacity to understand the nature of making a will, the effects of making a will, what they are doing by signing the will, and the property being willed to beneficiaries.
• Cannot be made under duress or coercion.

Valid Wills

• Must be in writing, though no set format is required.
• Testator must sign the will themselves, or it must be signed by someone else in their presence and direction.
• Must be executed in the presence of two independent witnesses in the presence of each other.
• It's advisable to have a solicitor prepare a will, especially for complex financial arrangements.

Form of a Will

• Recommended order for will content:
  • Name, address, and occupation of the testator.
  • Revocation of former wills.
  • Appointment of executor and trustee.
  • Specific gifts of personal estate.
  • Specific gifts of real estate.
  • Life interests.
  • Residual interests.
  • Maintenance and provision for infants.
  • Declarations of intentions and appointment of guardians.
• Executor can be a person, public trustee, or company, ensuring the instructions are carried out.

Intestacy

• Full intestacy: No will is made or cannot be admitted.
• Partial intestacy: A will doesn't dispose of all assets, a particular bequest is invalid, a beneficiary predeceases the testator, or the doctrine of forfeiture applies.
• Statutory rules must be followed in cases of intestacy.

Contesting a Will

• There is no obligation to distribute assets fairly or to any particular person under a will.
• Challenges can be brought based on:
  • Lack of testamentary capacity.
  • Undue duress or coercion.
  • Incorrect execution.
• The Family Law Act imposes a responsibility to make provision for others.
• Family Maintenance Act 1912 (TFM) claims can be brought if inadequate provision is made.

Challenging an Estate

• Each state has legislation granting the right to challenge a person’s estate (not specifically distributions by a will) to individuals who can establish a right to maintenance by that person.
• Only estate assets are vulnerable to an estate challenge.

Binding Financial Agreements (Prenuptial Agreements)

• Detail agreed outcomes relating to separation, divorce, and death.
• Enforceable if properly drawn up.
• Can provide assurance to third parties involved with either party.

Powers of Attorney (PoA)

• Donor appoints an attorney to act as their agent.
• Can be enduring (remaining valid even if the donor loses capacity) or general.
• Cannot make a will, delegate, act as trustee, or make lifestyle decisions.

Trusts

• Fixed (unit) trusts give beneficiaries a fixed entitlement to distributions.
• Discretionary trusts give beneficiaries an entitlement to be considered for distributions but no guarantee.

Family Trusts

• Assets can be held in trust.
• Income is distributed to beneficiaries at the trustee's discretion.
• Income is taxed at the beneficiary's marginal tax rate.

Testamentary Trusts

• Created under a will and is essentially a family trust.
• Children pay tax at adult marginal tax rate (beneficial).
• Drafting is important, and the lifespan is 80 years.

SMSFs

• SMSF trust deeds typically allow members to transfer accumulated benefits on death, bypassing probate.
• Provides protection from will or estate challenges; SMSF trustee directives are generally not overruled.
• SMSF trust deed holds more weight than a will as super assets are non-estate assets.

Consequences of Not Having a Will

• Estate is distributed in ways other than intended.
• Failure to provide for the particular needs of the deceased's family.
• Additional expense and diminution of value of the estate.
• Delay in the administration of the estate.
• No provision is made for deceased's de facto or stepchildren.

General vs. Enduring Power of Attorney

• A general power of attorney is non-enduring and ceases to operate if the donor loses mental capacity.
• Enduring power of attorney is an appointment of a legal personal representative to manage financial affairs in absentia and in the event of the principal becoming legally incapable (insane, comatose).
• A trusted representative will try to implement the principal's intentions. They cannot write a binding death nomination.

Testamentary Trust

• A legal arrangement created through a will that becomes effective upon the death of the will-maker (testator).
• A trustee manages and holds the deceased's assets for the benefit of the beneficiaries, according to the terms of the will.
• Established after the death of the testator by the will and comes into effect on the testator's death.
• Tax advantages are a key benefit compared to discretionary family trust.

Testamentary Trust Tax Advantages

• Income derived from the trust can be distributed to minor beneficiaries and taxed at normal adult marginal tax rates.
• This results in tax savings for minor beneficiaries, who have access to the tax-free threshold.

Other Benefits of Testamentary Trust

• Asset protection: Since assets are held within the trust, they're protected from the beneficiary's personal financial issues.
• Estate planning flexibility: Specific conditions can be set for asset distribution, reflecting the testator's wishes.
• Helps avoid estate challenges by providing clarity and guidance on the distribution of assets.

Trauma Insurance

• Provides financial cover in the event of a specified medical catastrophe, including Alzheimer's, stroke, etc.
• Heart attack, stroke, cancer, and heart surgery account for 92% of all trauma claims.
• Can be packaged with TPD or as a stand-alone insurance.
• Inability to work is not a requirement for claims, unlike TPD insurance.

Other Types of Insurance

• Motor vehicle.
• Private property.
• Landlords.
• Recreational/holiday.
• Professional indemnity.
• Private/public liability.

Motor Vehicle Insurance

• Relates to accidental damage to or by a vehicle.
• Can include insurance for losses arising from other perils (fire/theft).
• Types of coverage:
  • CTP: Compulsory third party (for third party personal injury; does not cover third party property damage).
  • TPPD: Third party property damage.
  • TPPDF&T: Third party property damage, fire and theft.
• Policies are separate and require separate premiums.

Financial Planner Responsibilities Regarding Insurance

• Part of a complete financial plan.
• To save clients financial loss.
• To avoid litigation.
• To protect the advisor's client base.
• To ensure the advisor has adequate professional and personal cover.
• It's important for financial planners to maintain records.