Why having a proper Estate Plan is so important

Your Will is a legal document that sets out directions for the administration and disposal of your assets after death. While most people are familiar with the concept of a Will, many are surprised to learn that a Will cannot automatically control the distribution of their interests in Companies, Trusts and other structures.

This is because a Will can only distribute the assets that you owned in your personal name on the date of your death. 

Assets that you may think you own, such as those held in privately held Companies, Trusts or Super Funds, do not actually form part of your Estate, and as such, it is important to understand how the assets held in these structures will be handled when you die.

For this reason, having an effective Estate Plan – a plan that not only includes the preparation of a Will but considers how assets will be handled in such structures - is a crucial component of your future planning.

The first step in this process is understanding how assets in these structures are controlled.

·       Jointly-owned assets are assets that are held in joint names. A common asset may be the family home. On death, jointly-owned assets pass by the laws of survivorship directly to the surviving holders.

·       Privately held Company assets are held by the Company, and governed by the Company’s constitution.

• Trust and Superannuation Assets are held by the trustee of the Trust / Super Fund, and are governed by its trust deed.

How can you ensure non-personal assets are dealt with according to your wishes?

While a Will cannot directly control how assets held in these structures are dealt with after your death, you can take measures during your lifetime to ensure that:

·       assets held in these structures are provided directly to a beneficiary according to your wishes (where possible), or

·       assets are directed to your estate, so they can be dealt with via your Will (where possible); or alternatively,

·       any interest you have in the structure is passed to your desired beneficiary.

Examples of control measures you can put in place

• SMSFs

A well-drafted SMSF trust deed will enable the members to control the distribution of their super entitlements on their death by directing the trustee to pay their benefits in their desired manner.  Mechanisms to achieve this include; binding death benefit nominations, death benefit rules, reversionary pensions or the appointment of a death benefit guardian. By using one or more of these methods, you can either direct your super benefits to specific individuals to be paid directly from the Fund, within legislative limits, or you can direct your benefits to your estate so they are then dealt with via your Will.

• Unit Trusts

As the beneficial entitlement in a unit trust lies with the units held in that trust, leaving the units you own in a trust to a beneficiary in your Will provides that beneficiary with access to your entitlement in the trust upon your death.

• Discretionary Trusts

The ability to receive entitlements from a discretionary trust lies at the discretion of the trustees so care should be taken to appropriately structure the trustee and appointor of the trust, so the beneficiaries you intend to receive benefits from the trust will have the ability to receive distributions after your death.

• Privately held Companies

As the entitlement to receive dividends and capital (upon winding up) from a company lies with the shares held in the Company (subject to the share classes held), leaving the shares you own in a privately held Company to a beneficiary in your Will provides the transfer of your interest in the Company to your intended beneficiary.

It doesn’t stop there

The above examples are just a few measures that can be put in place during your lifetime to ensure your assets – including your interests in structures such as privately held Companies, Trusts and Super Funds - are directed according to your wishes upon your death. But more examples do exist – such as what happens to the running of a business or trading company on your death?

For these reasons it’s important to consult with your financial planner or lawyer to ensure you have an adequate Estate Plan in place.

Source: Topdocs, Lonsdale