Understanding

estate planning
Version 5.2
 This document provides some additional information to help
you understand the financial planning concepts
discussed in the SOA in relation to estate planning.

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 Estate planning Your Will
HOW TO READ An effective estate plan includes tax Dying without a Will or with an invalid Will
THIS DOCUMENT effective Wills to protect your estate and is known as dying intestate. In such an
the interests of your beneficiaries in the event, laws are in place in each State and
Managing your finances to meet event of your death. Territory to determine how your estate
your day to day requirements will be administered. This may result
Jointly held assets, trust assets and
as well as your long-term goals in your estate assets being distributed
superannuation however, are not
can be a complex task. There against your wishes as well as incurring
necessarily dealt with by the terms of
are all sorts of issues you need unnecessary tax liabilities for your
the Will. These are usually considered
to consider such as taxation, beneficiaries.
’non-estate’ assets for estate planning
legislation, protecting your wealth
purposes. Note there may be specific Your Will is the document that directs how
and assets, associated costs and
State legislation that classifies non- your estate is to be distributed amongst
the inherent risks of investment.
estate assets as ‘notional estate’ for the your nominated beneficiaries.
When undertaking a financial plan
purposes of a family provision challenge.
it is important you understand how Most people wrongly believe their Will
these issues will impact you and It is therefore important to have covers all their assets, so special care
what you should expect over time. considered a comprehensive estate should be taken to ensure the ownership
plan to ensure all assets are transferred and control of all your assets including
Your financial adviser will provide
according to your wishes in the most ’non-estate’ assets, pass to beneficiaries
you with a Statement of Advice
effective and efficient manner. in the way you intend.
(SOA) which sets out the details
of the advice and how it will meet Outlined below are some factors to You are required to nominate an executor
your goals and objectives. consider when developing your estate plan. in your Will. The executor has the duty of
carrying out your wishes in the Will and is
This document provides some
granted power to administer the estate.
additional information to help you
This is likely to include collecting assets,
understand the financial planning
paying off any debts and distributing the
concepts discussed in the SOA in
benefits to those entitled.
relation to estate planning.
Careful consideration is required
It is very important you read this
when appointing the executor. It
document to help you understand
is recommended you discuss the
the benefits of the strategies
appointment with that person prior to
recommended to you and the
making the Will. In addition to estate
associated costs and risks.
beneficiaries, executors may also be your
Please contact your adviser if solicitor, accountant or a public trustee.
you do not understand anything,
or need further information or
clarification.

Understanding estate planning | 3

Your superannuation Death benefit nominations Testamentary trusts
Generally, your superannuation is an Subject to the rules of the fund, there are A testamentary trust is a trust created
asset excluded from your Will. If you a number of different types on beneficiary pursuant to your Will and may have
do not have a valid binding beneficiary nominations that you may be able to put several significant advantages. There are
nomination in place at the time you pass in place. different types of testamentary trusts,
away, any benefit payable upon death A non-binding death benefit nomination is including discretionary trusts and special
is distributed by the superannuation used only as a guide by the trustee when disability trusts.
trustee in accordance with the Trust deciding who should receive your death As with any trust, the trustee must act
Deed. This usually gives the trustee the benefit. This means that although the according to the terms of a trust deed
discretion to decide who should receive trustee can take your direction into account, and has the duty and responsibility to
your superannuation entitlements. they are not bound by your nomination and look after trust property for the benefit
Alternatively, you are able to put a may choose to pay the benefit to another of others. Appointing a trustee may
binding nomination in place to remove individual or to your estate. involve a financial cost and as the trustee
trustee discretion. You must follow some
A lapsing binding death benefit nomination will have discretion over the assets, you
important steps to make sure that your
allows you to nominate who will receive should carefully consider who you appoint
beneficiary nomination is valid (see
your superannuation benefits in the event as trustee.
below). This includes making sure that
the person you nominate is an eligible of your death and ensures the trustee is The terms of the trust deed of a
beneficiary. Eligible beneficiaries are legally bound by your wishes (provided that testamentary trust are contained in
detailed in superannuation legislation and your nomination is valid). The nomination the Will.
include your legal personal representative is able to be amended or cancelled at
As with most trusts, a testamentary trust
and your ‘dependents’. A dependent for any time and generally is required to be
will normally give the trustee:
this purpose includes your spouse, your renewed every three years, or periodically
children, any financial dependent or a (depending on the rules of the specific • the discretion to allocate income and
person in an interdependency relationship superannuation fund). The validity of your capital among any of the beneficiaries
with you. binding nomination is usually only reviewed • wide powers of investment, and
when you pass away. If your binding
Your superannuation may be paid to your nomination is not valid, the trustee will • the power to wind up the trust at
estate. This may arise if: distribute the superannuation death benefit any time.
• y ou have a valid binding nomination in in accordance with the Trust Deed.
place directing payment to your estate, A non-lapsing death benefit nomination is
because you don’t have a valid binding a binding death benefit nomination that
nomination in place, or does not lapse. A non-lapsing nomination
• the trustee uses discretion to pay to will remain in force until such time it is
the estate, or amended or revoked by you. As is the case
with a lapsing binding nomination, the
• the rules of the superannuation fund
validity of your binding nomination is usually
automatically directs the payment in
only reviewed when you pass away. If your
certain circumstances.
binding nomination is not valid, the trustee
Therefore, even if your intention is to will distribute the superannuation death
direct your superannuation directly to a benefit in accordance with the Trust Deed.
beneficiary, you should include a provision
Regardless of the type of nomination you
to deal with superannuation in case it is
make, it is important to review on an ongoing
paid to your estate.
basis to ensure it continues to reflect your
estate planning wishes and goals.

4 | Understanding estate planning

If the earnings, including capital gains, Power of Attorney Medical treatment and
derived by a trust are allocated to the
Granting a Power of Attorney means you lifestyle decisions
beneficiaries, those beneficiaries are
liable to pay tax on that income at their legally appoint a person or an organisation It is important to note different states
normal marginal tax rates. It is therefore to make decisions, sign documents and have different ways of dealing with
a common practice for the trustees of act on your behalf in various matters. medical and lifestyle decisions for a
a discretionary trust to distribute any When you grant a Power of Attorney you person who is mentally incapable of
derived gains to those beneficiaries who may choose to limit the actions which making such decisions.
have the lowest marginal tax rate in the the attorney can perform on your behalf Such methods may include:
distribution year. This is one of the main (Limited Power of Attorney) or give the
• Power of Attorney (medical treatment)
advantages of using testamentary trusts. attorney wide powers to undertake actions
– attorney has the power to give and in
Normally if a beneficiary of a trust is under on your behalf (General Power of Attorney).
certain circumstances, withhold consent
18 years of age, the trust income that Specific details as to the powers under to medical treatment on your behalf
is distributed to that person is taxed at a Power of Attorney are determined by
• Enduring Guardianship – guardian
penalty tax rates. Under these rates, the the state legislation to which the Power
has the power to make personal and
child only has a limited tax-free threshold. of Attorney relates. This may present
lifestyle decisions for you should
However if the income derived by the difficulties if, for example, you have
you lose mental capacity, including
trust was generated from inherited assets property in more than one state.
decisions as to where you live and
then the child will be taxed at normal adult
who with
tax rates. Enduring Power of Attorney
• Enduring Power of Attorney – attorney
A testamentary trust may also provide One of the limitations of a Power of Attorney has the power to act on your behalf
asset protection for beneficiaries of your is it generally ceases when the person during your life, in relation to your
estate who may face certain legal claims suffers a loss of mental capacity. This may investments and other financial matters
on their assets, divorce or bankruptcy. include cases where a person develops
Until such time as the trustee exercises dementia, or is left with significant • Advance Health Directive – a document
their discretion to pay an income or asset disability and mental impairment as in which you can express your wishes
entitlement to a beneficiary, all trust a result of an accident. This can be about medical treatment and how you
assets and income remain the property overcome with the use of an Enduring would like your body to be dealt with in
of the trustee. However, if the trust is Power of Attorney. This type of Power the event that you are unable to make
established in contemplation of frustrating of Attorney does not cease on mental these decisions for yourself.
the claims of, for example, legitimate incapacity and can therefore provide an
creditors, the courts may effectively As state based requirements differ, it
important tool in estate planning.
unwind the arrangement. is important to seek advice from an
appropriately qualified legal professional
These and other factors require careful on these and other issues when putting
consideration by your solicitor in together your estate plan.
conjunction with your financial adviser.

Understanding estate planning | 5

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