Question: I’m a single woman, never married and no children. I am a professional and have accumulated some wealth in shares and real estate etc. I also have a self-managed super fund (SMSF) which has considerable assets. I’m taking a well-earned break – a 15 day cruise in the Mediterranean.
My sister is a pain. She’s bugging me to do a Will before I go, after that other cruise ship sank recently. What risk do I face in not making a Will? Surely everything just goes to my family? Besides, I think Mediterranean cruise ship captains will be keeping to the deep water after the recent fiasco!
Answer: Many young people put off making a Will. Fortunately, tragedies like the Costa Cordia disaster are extremely rare. I could quote statistics about deaths due to cruise ships sinking or aeroplanes crashing versus getting hit crossing the road, but I am sure you already know all of that. The point is, accidents do happen – even if every precaution is taken.
Your sister is correct to be concerned. If you don’t make a Will, the government forces their Will (distribution rules) upon you. A major beneficiary of that government Will is the Australian Tax Office. This is through defacto death duties including Capital Gains Tax, Income Tax and Stamp Duty.
You are certainly not alone in not having a Will. You’d be surprised at how many wealthy people die without a Will. Or don’t update their Will to reflect their changing circumstances.
Some of the best examples of leaving things until it’s too late are:
1. Heath Ledger died in 2008 while making the Dark Knight. He had a Will which left everything to his parents. The problem is, since he made that Will in 2003 – Heath had a child, Matilda. By not updating his Will to accommodate his new circumstances, Matilda got nothing in the Will. Fortunately, Heath’s parents said they would look after her.
2. Howard Hughes the eccentric billionaire who founded Pan American Airlines died in 1976 at the age of 70. His Will was discovered at the headquarters of the Mormon Church in Salt Lake City. However, the Will was proved a forgery and his estate was divided, after tax, among his 22 cousins.
3. Stieg Larsson who wrote, amongst other titles, The Girl with the Dragon Tattoo died in 2004. He too died without a Will. Swedish law dictated his estate be divided between his father and brother. His lifelong partner of 32 years, Eva Gabrielsson received nothing. The family threw her a bone by granting her ownership of the couple’s apartment. Legally, they didn’t even have to do that much.
4. Jimi Hendrix died in 1970. He didn’t leave a Will regarding the distribution of his estate. The battle over his estate raged on for more than 30 years for one simple reason. His estate continued to generate money long after his death.
5. Pablo Picasso died in 1973 at the age of 91. He left a fortune in assets including artwork, properties, cash, gold and bonds. Because Picasso didn’t make a Will, it took 6 years to settle his estate at a cost of US$30m. After the lawyers had their fill, what was left was eventually divided up among six heirs.
Don’t leave it to the Courts to decide the fate of your assets. Even worse, if you don’t have a Will and there is no next of kin – the Government takes it all as the default. You’ve already paid enough tax in your lifetime, so why give the Government more when you die?
What is the next step in making a Will?
Speak to your accountant or adviser to implement strategies which ensure your assets aren’t laboured with debt after you are gone. Then, with your accountant contact a tax lawyer that specialises in Estate Planning. Civic Legal can help. Some tax lawyers specialise in Estate Planning to avoid the impact of the hidden de-facto death taxes.
1. 3-Generation Testamentary Trusts (wash out tax)
2. Superannuation Testamentary Trust (to wash out the 31.5% tax on your Superannuation)
3. Protective Trust (to stop any bankrupt family members losing your money)
4. Capital Protected Testamentary Trusts (for people with $25m plus in assets)
5. Maintenance Powers (to allow minors, alcoholics and drug users to enjoy the protection of the money without allowing them to get their hands on it)
6. Mutual Power of Attorney (to allow immediate action if your spouse can’t act)
7. Cascading Power of Attorney (when you and your spouse can’t act)
How is superannuation treated after you die?
Superannuation is not automatically part of the estate. It often passes outside of the Will.
Become a Platinum Member and you too can learn the secrets and learn how to deal with Superannuation and get it to non-dependants tax-free.
Is tax planning really that important at death?
Capital Gains Tax, Income tax and transfer duty are the stealthy de-facto death duties.
Your Will can benefit from a Three Generation Testamentary Trust:
• A Testamentary Trust is designed to minimise tax. That is, it is designed to allow the beneficiaries to wash out the de facto death duties
• One of the advantages of a Testamentary Trust is that the tax payable on the income earned on the estate or Capital Gains Tax payable is paid to family members on low tax rates.
• Each Primary Beneficiary controls their own Trust by becoming the “trustee” of their own Trust. For tax purposes, they control the assets. They do not own the assets.
• The Primary Beneficiary is often the person in complete control of the Estate assets in their own Testamentary Trust.
How do you protect beneficiaries?
Simple Wills do not protect bankrupt beneficiaries. That means your hard earned money goes directly to the beneficiary’s Trustee in Bankruptcy. You might as well just pay the debts yourself. In the meantime, the poor beneficiary is left with nothing from your estate.
A 3 Generation Testamentary Trust Will from Civic Legal gets around this unfair situation by including Protective Trusts.
Protective Trusts keep the wealth in the family. A Protective Trust is an instruction to the Executor not to distribute to a beneficiary if they:
1. are bankrupt;
2. lack mental capacity or;
3. are under age.
The Protective Trust is designed to preserve the estate until the beneficiary qualifies for the gift. Meaning, once they are out of bankruptcy – they have a nice boost to get them back on their feet.
Can your Will be challenged?
Find me a Will and I’ll find you a challenger. There is a strong blood line relationship which defines who can make an application to the Supreme Court to challenge a Will.
The class of people who can challenge your Will differs in each state, but generally include:
• your parents
• your spouse – including de factos, mistresses and gay partners
• your biological and adopted children (but not step-children)
• your biological and adopted grandchildren
• anyone that you financially maintain (but not in all states)
• a new addition is step children that were financially dependent on you during your marriage to their natural parent (but not in all states).
We always recommend a Considered Person clause to mitigate the risk of people challenging your Will. A Considered Person clause names those people who you don’t wish to make provision for beyond what is stated in the Will. There’s no need for details in the Will – when you die, your Will becomes a public document. Best not to feed the rumour mill and embarrass your family. A Considered Person clause does not prohibit a person challenging the Will, however it makes it harder for them to be successful.
Source: LawCentral 7/2/12