Is simple enough for you?

Most of our clients come to us and say “I just want a simple will. I just want to keep things simple. I’m not into complicating things.”

Often the clients with the most complex situations balk at paying the extra for a sophisticated will and do not understand the risks of keeping things “simple”.

A “simple” will is a fairly basic will that simply gives out right gifts. A typical scenario is a husband and wife – they will leave everything to each other, then to their children in equal shares and then to grandchildren, nieces and nephews or charities. There may be one or two specific gifts.

When administering an estate with a simple will, despite having broad powers, executors are left with little choice or incentive but to sell all the assets and discharge the debts with the balance to the beneficiaries as cash, or the occasional in specie gift.

No consideration is given to the situation of the beneficiary.  They could be receiving Centrelink benefits, which the inheritance could impact either permanently or temporarily; they could be an undischarged bankrupt and the gift used to discharge their debts; they could be in the midst of family law proceedings and their gift be divided in accordance with property orders. Alternatively, money received from an inheritance ended up being part of the general asset pool available for distribution between the separating parties.

It also does not protect against remarriage of your partner after your death and your assets end up benefiting a new spouse or their children. In a simple will the gift is determined (usually) 30 days after your death. Once that person has inherited, you cannot control where the gift goes. In most cases of simple wills (or intestacy) your children are not guaranteed to benefit from your estate. A sophisticated will can ensure your children are beneficiaries no matter if your partner survives you or not.

Your hard earned wealth (of however modest means) may not end up benefiting those you wish or in the way you hoped, but could end up going to a third party you would not want to benefit.

Is this enough for you?

A more sophisticated will is one which essentially creates a discretionary trust upon your death. The trust can be optional, so those of your beneficiaries who are adults can choose whether to take their gift as a simple gift or to take advantage of the discretionary trust. However in order to make this choice, the will must be set up with the terms of the trust deed included in it. This is what makes the particular trust ‘testamentary’ in nature, as opposed to a normal family discretionary trust you may set up during your lifetime.

One advantage of a testamentary trust is asset protection. A testamentary discretionary trust is the main vehicle in which assets may be legitimately beyond the reach of creditors (in case of bankruptcy) or another party in family law proceedings. It should be cautioned that nothing is iron clad, but a testamentary trust is the next best thing.

A testamentary discretionary trust provides for income splitting, as minor beneficiaries are entitled to the full adult tax free threshold (although the Federal Government is making some changes in this area). Under a testamentary trust structure, a beneficiary receiving Centrelink benefits may be able to continue to do so (by keeping income below a threshold rather than a lump sum gift), as well as being a beneficiary of your estate.

Due to the advantages in a testamentary trust, executors and trustees are encouraged and more likely to make investment decisions that will act to grow your estate. Capital of the trust may be preserved and the beneficiaries receive regular distributions of income.

No one has a crystal ball to predict the future. A testamentary discretionary trust however can last for up to 80 years from the date of your death. So by setting up a more sophisticated will you can be benefiting not only your spouse and children, but also your grandchildren, great grandchildren, and maybe even your great great grandchildren!

“But don’t they cost more?”

Of course, a more sophisticated will does cost more than a basic will. More time is required in drafting and the document is significantly longer. Some firms charge as much as $8,000, however it is possible to have a will with testamentary trusts prepared for less than $2000.

The only other costs are those associated with the administration of the trust after your death, which typically would include tax returns, trustee fees (if third party trustee) and accountancy fees. There may be share brokerage fees as well. These fees could be paid from income generated by the fund.

Everyone should have a will. You’ve worked hard to buy property and generate some wealth. Most people only write one or two wills during their lifetime. Isn’t it worth a comparatively small upfront investment to know your assets are protected and will benefit those you wish? A small investment now will ensure your estate continues to benefit your loved ones well beyond your death.

Call or email LS Legal today to discuss your estate planning needs.

This is general advice only and not to be taken as legal advice. For further information about testamentary discretionary trusts and estate planning in general, please contact Leah Sewell at LS Legal Pty Ltd 9484 1165 leah@lslegal.com.au

Leave a Reply

Your email address will not be published. Required fields are marked *