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This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.


How to Avoid Leaving Ill Will

Sorting out your affairs in a timely manner could help avoid disputes after your death, writes Lesley Parker.

There's no feud like a family feud, yet that's what many people bequeath their loved ones either because they haven't made a will or their last words have been drafted badly.

The NSW Trustee and Guardian service estimates that 45 per cent of adults in the state - and more than 60 per cent of parents who have young children - don't have a will. In Victoria, State Trustees says one will in four ends up in dispute.

The result, these government agencies say, is that it takes much more time and money to sort out the legal and financial mess than it would have required to get your will right in the first place. Meanwhile, incalculable damage is done to family and personal relationships as people argue over equity.

A spokeswoman for NSW Trustee and Guardian, Ruth Pollard, says many people don't want to think about death. "They think they're invincible or that this is something that's a long way off and making a will is something you do at the end of life," she says. "But you never know what's around the corner. Anyone over 18 can make a will and if they have assets, they should."

Other people assume intestacy laws - which kick in when a will doesn't exist - will sort things out, Pollard says. "But the laws of intestacy are a failsafe only," she says. They don't always provide for friends and family in the ways you would wish, particularly when divorce and remarriage complicate matters.

Whether in death or divorce, people fight tooth and nail over how money is divided, says a financial planner from the Aylesbury Financial Group, Trudy Heins.

What happens to your estate when you die without a will differs from state to state. In NSW, what Pollard describes as "rather radical" changes to the law will take effect next year, from a date that is yet to be finalised but probably March 1.

Currently, when people die without a will in NSW, their assets are distributed to various family members according to a fairly complicated formula that, among other things, favours full-blood relatives over half-blood relatives and may or may not provide for a de facto partner.

The main aim of the new law is to ensure the primacy of the spouse, Pollard says. It also removes the distinction between full- and half-blood relatives and adds cousins and charities to the chain of people who can inherit before unassigned estates go into state treasury coffers.

A major change will be the introduction of the idea of "multiple spouses" to cover both legally married spouses and people referred to in the law as "domestic partners".

So, for example, if someone is married but separated from his or her spouse and living in a de facto relationship, the new domestic partner would be entitled to a share of the estate - a share decided either by agreement or, more likely, by court order.

If there's been a divorce, the current domestic partner will get the lot, unless there are children from the earlier marriage, in which case the partner will get the first $350,000, the personal effects and one half of what's left over. The other half of what's left over will be divided among the children.

"Today, there are more and more people with two or three relationships and children from these various relationships ... [the new law] is really aimed at bringing a bit of fairness, justice and equality to the process," Pollard says.

That said, you'll only ever get the precise outcome you want if you make a will - in which case, you're free to distribute your estate as you wish, with one caveat: you have a legal obligation to provide for family and anyone who can show that they were dependent on you.

In Victoria, legal challenges by people who thought they should have been provided for account for numerous will disputes. "It's more widely understood these days but most people think, 'Damn it, it's my will and I'll do what I want,"' says the State Trustees' head of marketing, Doug Sumner. "Of course, it doesn't quite work that way."

Legal services manager Paul Burdett explains: "In NSW, there's a prescribed group of people who can challenge. In Victoria, it's anyone to whom the testator had a responsibility to provide for. The class of people here is extremely wide - and it's not necessarily just immediate family members." It could be someone who was sharing the deceased's home, for instance.

"If you want to avoid the possibility of costly and time-consuming litigation, what you need to do is look deep in your heart and ask yourself, 'Am I being fair? Am I acting reasonably?"' Burdett says. The intricacies of the law mean the trustee services are wary of do-it-yourself will kits.

"The underlying motivation for preparing a will is to leave things sorted out," Sumner says. "Using a kit doesn't automatically mean it's going to be a disaster but there's a significant possibility, in our view, that the do-it-yourself approach will create the sort of problems that will result in you not achieving that end."

If cost is an issue, Pollard says her service prepares wills free as long as the NSW Trustee is appointed administrator of the estate - at which point it will earn fees.
State Trustees charges $167 an hour for working on a will if it is appointed executor, or $285 an hour if it's not.

Pollard says private solicitors can have quite reasonable fees for preparing a will but these vary and it pays to shop around. Money made some inquiries with solicitors and found the cost of a generic "tick the boxes" will that was suitable for a plain-vanilla family started at about $125.

Involving your financial planner and accountant, as well as your lawyer, can be a good idea, too. "This is the end game of your wealth creation," Sumner says. People need to come to grips with complexities involving taxes, trusts and how superannuation fits in.

"There's a whole subset of financial issues," he says. "For instance, it's not generally recognised in this country that, in fact, we do have death duty. It's called capital gains tax." People can inherit assets "pregnant" with CGT and, depending on the particular circumstances, potentially trigger a tax bill for the gains made since the original purchase of the asset by the deceased, he says.

Heins says even the family home isn't safe. A beneficiary has a two-year window to sell mum or dad's house before CGT comes into play, when it's calculated on today's value versus its value at the time of death. Another quirk, Sumner says, is that the estate can be left with a tax bill on assets that were bequeathed to a tax-exempt charity.

A lawyer who heads estate planning for superannuation specialist Dixon Advisory, Phil Bailey, says that when it comes to super, people need to understand it is not an estate asset. Estate assets, such as personal belongings, are distributed according to your will. But a will has no power over non-estate assets, such as those held inside family trusts and super.

"Super can become an estate asset but only if you've directed it to become so in a binding nomination," he says. A binding nomination is a direction you give to the fund's trustee on how to distribute your funds upon death. Who you can nominate, how the money will be paid out - as a lump sum or income stream - and whether it will be taxed or not depends on the status of the potential beneficiary as a "superannuation dependant" and then, in a further step, as a "taxation dependant". Your spouse, your children and anyone with whom you have an "interdependent relationship" qualify as super dependants and can receive your super direct from the fund, rather than through your estate.

However, they also have to be tax dependants to receive it as an income stream and to be exempt from tax. Basically, tax dependants are a subset of super dependants and your adult, non-dependent children fall outside this group.

So, if your beneficiary is a fully independent 30-year-old "child", he or she is still a super dependant but will have to take a lump sum and cop 16.5 per cent tax on the taxable component of the payout (the money that's already had the benefit of special tax concessions for super, such as salary-sacrificed contributions).
If you want to give your super to someone, such as a brother or sister, who isn't a super dependant - let alone a tax dependant - the money will have to be paid into your estate to reach them.

Bailey says one benefit of self-managed super funds is you don't have to make fixed, binding nominations when you don't know what the age or circumstances of your beneficiaries might be when you die. Instead, the trustee of your self-managed super fund has the discretion to adjust payouts to achieve the optimum result.

For example, you might have children aged four to five years apart and one may be 22 and independent when you die while the other is just 17 and a taxation dependant. Divide the super equally between them and one will pay 16.5 per cent tax but the other no tax. The trustee could adjust things to "equalise" the inheritances, he says.

Heins says the social security status of your nearest and dearest is another area in which professional advice may be helpful. You may need to consider the real value of an inheritance to them if it causes them to breach the Centrelink asset or income means tests.

Lesley Parker
Sydney Morning Herald - December 2, 2009


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