Wills and Estate Planning

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Questions and Answers

What is one of the major tax advantages of setting up a testamentary trust for minor beneficiaries?

Each minor beneficiary is entitled to the tax-free threshold. (correct)

Minor beneficiaries are subject to a flat tax rate regardless of income.

Minor beneficiaries must report all income as adults.

Minor beneficiaries can only receive a reduced tax credit.

Which benefit of a testamentary trust primarily addresses the prevention of family disputes over inheritance?

Taxation benefits related to excepted income.

Ability to change beneficiaries at any time.

Estate planning flexibility through structured conditions. (correct)

Asset protection from creditors.

How does a testamentary trust provide asset protection for beneficiaries?

Beneficiaries receive a yearly evaluation of their assets.

Assets are directly enrolled in government schemes.

Beneficiaries are shielded from all taxation.

Assets are held outside of the beneficiaries' personal ownership. (correct)

What potential benefit does a testamentary trust have for family members with disabilities?

Allows maintenance of social security benefits. Signup and view all the answers

What is a possible tax strategy facilitated by testamentary trusts for families?

Income splitting between surviving spouse and children. Signup and view all the answers

What is a primary consequence of not properly managing an estate?

Reduction of the overall estate value Signup and view all the answers

Which of the following accurately describes a general power of attorney?

It ceases to operate if the donor loses mental capacity. Signup and view all the answers

What is the purpose of appointing an enduring power of attorney?

To manage financial affairs during any absence of the principal Signup and view all the answers

What is a significant advantage of a testamentary trust compared to a discretionary family trust?

Tax advantages, especially for minors Signup and view all the answers

Which statement correctly describes the initiation of a testamentary trust?

It is effective upon the death of the testator. Signup and view all the answers

What is the primary function of a will?

To dispose of a deceased estate’s assets to the intended beneficiaries Signup and view all the answers

Which of the following is NOT a requirement for making a valid will?

Must include specific gifts to all family members Signup and view all the answers

Who is eligible to make a will?

Anyone over the age of 18 with testamentary capacity Signup and view all the answers

What must happen if a beneficiary dies before the testator?

The will must include specific directions regarding that beneficiary Signup and view all the answers

What role do the independent witnesses play when executing a will?

They are essential for the validity of the will's execution Signup and view all the answers

What does 'testamentary capacity' mean in the context of will-making?

Having the mental capacity to understand the will-making process Signup and view all the answers

Which law governs the distribution of assets when there is no will?

Administration and Probate Act 1958 Signup and view all the answers

What is the suggested order of contents in a will?

Executor appointment, revocation of previous wills, specific gifts Signup and view all the answers

What is considered full intestacy?

A situation where no will is made or cannot be admitted Signup and view all the answers

What is NOT a common law challenge ground for contesting a will?

Inadequate provision for dependents Signup and view all the answers

What feature distinguishes a discretionary trust from a fixed trust?

Trustee has discretion over income distribution Signup and view all the answers

Which statement correctly describes the role of a Powers of Attorney?

Acts as an agent but cannot make lifestyle decisions Signup and view all the answers

Under the Testamentary Family Maintenance Act 1912, what can be claimed?

Provision for adequate maintenance for dependents Signup and view all the answers

What is a key advantage of a SMSF (Self-Managed Super Fund) in estate planning?

It provides certainty over estate challenges Signup and view all the answers

What is the maximum lifespan of a testamentary trust?

80 years Signup and view all the answers

What type of prenuptial agreement establishes enforceability?

One that is properly drawn up and documented Signup and view all the answers

Which statement accurately describes Trauma Insurance?

It provides financial cover for specified medical catastrophes. Signup and view all the answers

What is a key distinction between Standard/Any and Own type policies?

Standard/Any applies if unable to perform any occupation. Signup and view all the answers

Which type of insurance does not typically require the inability to work for valid claims?

Trauma insurance Signup and view all the answers

Which type of motor vehicle insurance covers third party personal injuries?

CTP Signup and view all the answers

What is one necessity for financial planners concerning insurance?

To protect their client base and reduce financial loss Signup and view all the answers

What does TPPD insurance specifically cover?

Third party property damage only Signup and view all the answers

Which statement about trauma claims is true?

A significant percentage of claims stem from heart attacks, strokes, and cancer. Signup and view all the answers

Which of the following is an example of non-motor vehicle insurance?

Private/public liability Signup and view all the answers

Study Notes

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.

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Description

Explore the essential aspects of wills, including the legal requirements for creating one, the roles of executors and guardians, and applicable laws such as the Wills Act and the Administration and Probate Act. This quiz will help deepen your understanding of how to effectively manage an estate after death, including who is eligible to make a will and what constitutes testamentary capacity.