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Fox and Thomas provide estate planning services which take account of the specific situation of individual clients. Preparing your will and power of attorney isn’t something that should be taken lightly. A properly considered and implemented estate plan involves arranging your assets, entities and business structure to ensure that:

  • in the event of your death, your beneficiaries derive from your assets the maximum use and enjoyment possible at a minimum cost in taxes and duties;
  • in the event that you are incapacitated, your personal, financial and legal affairs are appropriately managed by a trusted person/s.

Fox and Thomas provide estate planning services that are particularly attuned to the needs of our agribusiness and general business clientele. Our advice will deal not just with the distribution of personal assets at the time of your death, but with a carefully considered and well set out plan for passing your assets and business to your beneficiaries.

By taking the time to develop an effective estate plan with us, you also reduce the risk of disputes arising over your estate and affairs. If disputes do arise, our experienced estate litigation team are well placed to assist you.

How to prepare


Preparing for your initial appointment with us to discuss the preparation of your overall estate plan (including your will and enduring power of attorney) is key. We recommend that you:

  • Read our guide to estate planning (which we will send to you in preparation for your meeting).
  • Consider what your assets and liabilities are and their approximate values. Bring information about these assets with you, i.e. addresses of real estate, information on who are the account holders of your bank accounts etc.
  • Ensure you know the full name and address of anyone you want to nominate in your Will or Enduring Power of Attorney (i.e. an executor, beneficiary, guardian for your children under 18 or someone to make decisions on your behalf if your unable to do so).
  • Consider whether you have any ‘at risk’ beneficiaries or any beneficiaries who might need long term asset protection or tax management. If so, you may wish to consider including testamentary trusts in your will.
  • Bring with you to your appointment your most recent superannuation member statement and information about any life insurance policy you hold.

Straightforward estate planning


Everyone’s personal and financial situation is unique and deserves professional advice to ensure that their estate planning (including the preparation of their wills and enduring powers of attorney) reflects their wishes on death or incapacity whilst also making provision for their family and dependants.  Sometimes the result of that advice is a relatively straight forward will and enduring power of attorney.

Where your assets are held in your own name (as opposed to being held in an entity such as a trust or company) and you are passing your assets in your will to your spouse and in the alternative to your children – a simple will may be sufficient.

We will explain the options to you when you meet with us and only recommend a simple will and enduring power of attorney if that is all your situation requires.

We recommend that every person over the age of 18 should have a will and enduring power of attorney.

Testamentary trust wills


Dealing with complex personal, financial or business matters in estate planning will often result in a will that relies on trust arrangements to ensure that your wishes are carried out.  Wills establishing testamentary trusts can also provide significant benefits in reducing tax liabilities, protecting vulnerable beneficiaries or keeping particular assets intact for future generations.

When you discuss your estate plan with us, we give careful consideration to your individual circumstances and will recommend a testamentary trust will where we believe it provides the results you want and offers significant benefits to your family.

What is a testamentary trust?

Testamentary trusts are discretionary (also known as family) or fixed trusts established in a will that take effect following your death. Upon your death, your assets are distributed to the trustee/s of the testamentary trust which holds the assets for and on behalf of the beneficiaries of your estate.

Testamentary trusts can provide a large range of benefits, including protecting estate assets and maximising the benefit of a gift for a beneficiary by lowering the effective income tax or future capital gains tax in relation to the gift.

Protection of estate assets

In many situations, establishing a testamentary trust which prevents the beneficiary from owning the gift absolutely but entitles them to the income or part of the capital assets, protects the asset and ensures it provides the benefit you intended.

This is useful in situations where there is a risk of losing the estate asset if it were to be transferred to a beneficiary directly, for example:

  • if the beneficiary or their spouse is in significant debt or bankrupt, a testamentary trust can protect gifts from creditors. They can also protect the gift from the debts that a beneficiary may incur in terms of guarantees given by that beneficiary of their spouse’s business debts;
  • if the beneficiary has signed a security agreement in favour of a bank or creditor;
  • if the beneficiary or the spouse is receiving social security benefits, the entitlement may be lost because of the gift; or
  • if the beneficiary or their spouse has a gambling or spending problem and is likely to sell or squander the gift.

Income tax planning

Trust income for children under 18 is generally tax-free only for the first $416 after which punitive tax rates of up to 66%, but more likely 45% (excluding Medicare levy), are payable on the balance.

Testamentary trusts are an exception to this rule as children are treated as adults for tax purposes and accordingly, the standard tax-free threshold of $18,200 is available to children, who can also utilise the benefits of the varying income tax rates.

In large estates where there are several beneficiaries who are children under 18, the tax savings can amount to many thousands of dollars each year. Below is a diagram of this effect.

Education expenses

Grandparents often wish to leave gifts via a testamentary trust for payment of boarding school and tuition fees for their grandchildren.  This is a more tax effective method of providing for their education rather than leaving additional gifts to their own children to educate the grandchildren.

Intergenerational transfer of assets

While there is no CGT payable where assets are transferred by will, there is CGT where the assets are transferred by way of gift.

Testamentary trusts can be used where an asset is left on trust, the spouse of the will-maker may be the initial trustee with power to divert income and capital to his or herself but at a time convenient to the spouse, the spouse resigns as trustee and passes control of the trust to one or more children.

This is a common situation with income producing properties or other family businesses which are often transferred to a child by parents who are in their 60s or 70s.

Stamp duty and CGT can be eliminated, delayed or minimised in this way.

Divorce of a beneficiary

Assets held in a testamentary trust are not assets of any individual and the Family Court tends to avoid making orders requiring the disbursal of those funds.

Depending on how the trust is drafted, assets held in the testamentary trust may also be exempt from being considered as a resource of one of the parties for the purpose of any family law dispute.

Remarriage of spouse

Where families wish to provide for their spouse but are concerned that the spouse may remarry and divert the family assets to the new family or, as sometimes happens, use the family assets in risky or unprofitable ventures at the suggestion of the new spouse.

High risk beneficiaries

Where one of the beneficiaries is in a high-risk profession or a business where negligence claims or other business risks are likely, a testamentary trust safeguards the asset.

Pension entitlements

By leaving assets to a testamentary trust rather than to individuals, the individuals can sometimes satisfy the pension means test.

Nursing home subsidies

Where people are concerned that by leaving their assets directly to their spouse, their spouse may not meet the means test level for subsidised nursing care, the use of the testamentary trust may assist the spouse in qualifying for any subsidies.

Special disability trusts


A special disability trust is a type of trust which allows parents and other immediate family members of an individual with a severe disability to provide for their long-term care in a manner that will not impact on the disabled beneficiary’s entitlement to a disability support pension and the associated health care benefits.  The trust can be established whilst the parents/other immediate family members are alive or through their last will.

Immediate family members can gift assets (such as cash, shares, property) to the trust, of which the individual is the sole beneficiary.  The income from the trust is then used to fund the ongoing care, medical expenses, accommodation and some discretionary expenditure for the individual without affecting their entitlement to the disability support pension.

CGT benefits

Where CGT assets are gifted into a special disability trust for no consideration (i.e. no payment in return) a CGT exemption applies which means the family member transferring the asset to the trust will not personally incur CGT liabilities.

If a special disability trust acquires a residence for the beneficiary to live in:

  • the CGT main residence exemption will apply to it.
  • the CGT exemption is allowed for the recipient of the beneficiary’s main residence, if the main residence is disposed of within two years of the beneficiary’s death.

Concessional benefits

Special disability trusts also provide concessional benefits for:

The beneficiary:

  • all assessable trust assets up to the concessional limit of $700,250* are exempt from the assets test for the purpose of calculating the beneficiary’s entitlement to the disability support pension.
  • if the beneficiary’s primary residence is held in the trust it is an exempt asset and not included in the assessable assets of the trust.
  • no income or distributions from the trust are assessable under the disability support pension income test.

*as at 1 July 2021 – this figure is increased by CPI annually.

Eligible immediate family members:

  • Immediate family members who are receiving a social security, service pension or veteran’s income support supplement (and are of age pension age or veteran pension age), can gift assets to a special disability trust and claim a gifting concession of up to $500,000 (combined total limit for the trust). This means that their entitlement to the pension will not be adversely affected by this gift

Main residence trusts


A main residence trust is a special form of testamentary trust. A typical scenario where we would utilise a main residence trust involves a couple with two adult children. The wife owns the family home (i.e. the main residence) in her sole name. She wants to ensure that when she dies, her husband will be free to live in the house as long as he wishes, but she does not want him to own the house outright. This may be due to several reasons, such as:

  • If this is a second or later relationship for one or both of the husband and wife, and they have children to previous relationships, a main residence trust ensures that the wife can “fix” the ultimate beneficiaries of the trust’s assets (i.e. her children or a combination of both the husband’s children and wife’s children), without relying on her husband to ensure that he makes provision in his will for the wife’s children.
  • She fears that if her husband remarries, the house will ultimately end up in the hands of the new spouse, rather than the couple’s children.
  • Due to the husband’s alcohol, drug or gambling addictions or generally risky spending behaviour, she fears that the house may be end up being sold and the profits squandered.

A solution to the wife’s fears is to establish a main residence trust in the wife’s will, of which the husband is the beneficiary, and both the husband and children are trustees. Upon the wife’s death, the husband is essentially given an absolute entitlement to live in the house for as long as he requires.

How the assets of the main resident trust are managed, including when assets can be sold and how the sale proceeds are then dealt with (i.e. to acquire a smaller home for the husband to live in, to purchase a right to live in a retirement village or aged care facility, to meet medical expenses etc.) will depend on how the terms of the trust are drafted. In some cases, it may be that the surviving spouse has to obtain the consent of the deceased’s children before proceeding with the sale of the house or any other assets of the main residence trust. A main residence trust provides our clients with the opportunity to design the terms of the trust depending on their specific circumstances and in particular, to provide clear, binding directions on the circumstances of how and when their main residence (often a significant asset – both in value and sentiment) can be dealt with during the lifetime of their surviving spouse.

In many cases, and depending on the specific terms of the main residence trust, if the property is sold in the future, the transaction will be able to claim the main residence CGT exemption.

Powers of attorney


There are times in your life when you may not be able to take care of your affairs yourself.  This may be because of illness, age related difficulties or because of a temporary condition caused by accident or injury.  In this case, a power of attorney document provides the legal guidance as to who can make decisions about your health and financial matters.

While many people believe only the elderly need a power of attorney, we recommend these documents to all our clients as you never know when unfortunate circumstances may mean you are unable to make decisions for yourself. This makes an enduring power of attorney one of the most important documents you may ever sign.

Who should I appoint as my attorney/s

Ultimately the attorney/s you appoint will look after your affairs and can do most things you can do on your own behalf (except make your will).  The individual/s you appoint as your attorney/s should therefore be someone you trust implicitly and preferably be a member of your family.  It is normal to appoint your spouse as your attorney and one or two others if the first person is unable or unwilling to act.

Who you choose to make decisions for you in the power of attorney, and how they make those decisions is critical. We will discuss with you and encourage you to consider practical issues like:

  • are you confident the individuals you wish to nominate will act in your best interests, and not make decisions that will benefit themselves? Conversely, do you want your attorneys to be able to make decisions about you and your assets which will also benefit them (particularly where the individuals you appoint are your spouse and/or children)?
  • if you are appointing your attorneys to act jointly, will they actually be able to act together effectively?
  • Where do your attorneys live? If they are in far flung places, are you comfortable with there being some delay in their decision-making on your behalf?
  • Have you spoken to these individuals about your wishes and expectations in the event of your incapacity?

General v Enduring

A general power of attorney allows you to appoint individuals or organisations to make financial and legal decisions for you whilst you still have the legal capacity to make those decisions for yourself. These are often used in short-term situations, for example if you’re travelling overseas and need someone back home to manage the sale of your house However, if you lose capacity and can no longer legally make decisions for yourself, the general power of attorney is no longer valid and cannot be used by your attorneys.

A general power of attorney cannot be used to make health decisions for you. If you want to appoint individuals to have the legal power to make health decisions for you, then you must make an enduring power of attorney in Queensland or appoint an enduring guardian in New South Wales.

An enduring power of attorney allows you to appoint other individuals to make decisions for you (financial, legal and/or health) if you lose capacity and are legally incapable of making decisions on your own behalf.

QLD

Queensland legislation allows you to appoint attorneys to make financial/legal decisions and decisions about personal matters (including health decisions) in a single form known as an enduring power of attorney.

You can choose the same individuals to make both health and financial /legal decisions for you, or different individuals. You can also choose how your attorneys make their decisions, i.e. jointly, severally, as a majority or successively (in a particular order nominated by you in the document).

You can choose when your attorneys’ power to make financial /legal decisions for you will start. We generally recommend that your financial attorneys’ power commences immediately upon your signing of the document. This will ensure that your financial attorney can make decisions for you from the date of the enduring power of attorney.

The personal matters power will only commence if you are legally incapable of making decisions on your own behalf. Prior to then, you are the only person who is legally entitled to make personal and health decisions for yourself.

NSW

To appoint attorneys to make financial/legal decisions for you in NSW, you must make an enduring power of attorney.

If you would also like to appoint an enduring guardian to make decisions about your health and lifestyle, you will need to complete an appointment of enduring guardian.

You can appoint the same individuals to make financial/legal decisions in your enduring power of attorney and to make health decisions for you in an appointment of enduring guardian form.

What if I have trusts, companies or other investment/business structures

If you have investment or business structures such as companies, trusts or self-managed superannuation funds or you otherwise have an interest in a business, your enduring power of attorney should include provisions allowing your attorneys to effectively manage those on your behalf if you lose capacity.

The company constitution and trust deeds should be reviewed to make sure you have the power to appoint an attorney for your interest in those entities.

Advance Health Directives


If you are facing a serious medical illness, an advance health directive can provide the peace of mind that comes from knowing you have given clear instructions about your particular health care expectations.

In Queensland, an Advance Health Directive is a detailed document which is prepared in consultation with your medical practitioner and includes a wide range of health situations so that you can let family, friends and hospital staff how you expect to be cared for if one of those situations should arise.

Reviewing your will


Once a will has been made, it needs to be regularly reviewed to ensure it continues to reflect your wishes and takes account of any changes in your personal or financial circumstances.

There may also have been legal changes and developments that your original will did not take into account.

We recommend reviewing your existing will if it was made more than 5 years ago, or if any of these events have occurred in your life.

How different types of assets are dealt with upon death


Joint tenants v tenants in common

Property or assets held as joint tenants may pass directly to the surviving owners, regardless of the terms of your will.  These types of assets include land titles specifically stipulated to be held as joint tenants, jointly held bank accounts, jointly registered vehicles and jointly owned shares.

When property or assets is held by more than one person as tenants in common, each person has ownership of their specified share.  On your death, your share of the property or asset held as a tenant in common will pass to your estate and then to your beneficiaries, as stipulated in your will.

The title to assets owned by a partnership passes automatically to the surviving partners. However, the surviving partners must account to your estate for the value of your partnership interest.

Part of the advice we provide to you in formulating your overall estate plan may include recommendations to change how you own property with others.  You can change how you own property with others: either by severing a joint tenancy, or changing a tenancy from tenants in common to joint tenants. Doing so may impact on what assets are dealt with as part of the administration of your estate and/or what assets are vulnerable to any litigation against your estate following your death.

Superannuation

Superannuation death benefits will often pass outside of a will, either at the discretion of the trustee of the superannuation fund or as per the terms of your binding death benefit nomination.

It is important that the person preparing the will understands and clarifies the precise nature of ownership of the asset to ensure it is dealt with effectively in the estate plan.

Life insurance

Depending on the terms of the policy, life insurance proceeds will pass:

  • to the estate of the owner of the policy, and are dealt with within the will;
  • to the owner of the policy, if that person is not the person whose life is insured; or
  • to the person nominated as the beneficiary in the policy document.

Rural property and water assets

We know and understand the agribusiness sector, having provided succession and estate planning advice and services to our rural clients for many decades.

Estate planning for our agribusiness clients is not simply about ensuring they have a will and enduring power of attorney, we are often deeply involved in their succession planning discussions well before the actual terms need to be documented and any assets are transferred.

The discussion about how the shift of control in an agricultural business from one generation to the next might occur, and when the timing is right, requires advisors who have a deep understanding of the unique ways in which many families in the agribusiness sector have developed and grown over time; as well as a willingness to work closely with your financial, accounting and tax advisors to ensure the most effective outcome for every generation in the family business.

Farm Management Deposits

Farm management deposit accounts, or FMDs as they are known, allow primary producers to deposit surplus funds into a FMD bank account in profitable years, claim an immediate tax deduction on the deposit for that financial year, and then draw upon them in less profitable years and pay tax at a lower rate.

FMDs are assets of the individual primary producer (as opposed to an asset of the farming business entity) and any funds still held upon the primary producer’s death must be withdrawn and will be assessable income in the deceased’s final tax return.  This can have negative tax consequences for the deceased’s estate, particularly if the balance of the FMD is high.

If you have an FMD or are considering depositing funds to an FMD, it is very important that you consult an experienced estate planning lawyer to ensure the FMD is appropriately dealt with in your estate plan.

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