A Will is a legal document in which you set out your intentions and instructions in relation to how you want your Estate Assets to be distributed after your death. Having an up-to-date Will is, therefore, an essential part of every person’s basic Estate Planning.
Wills may be basic and leave your assets to named beneficiaries absolutely or may create one or more Testamentary Trusts for the benefit of beneficiaries. Wills creating Testamentary Trusts, especially Wills creating Beneficiary Controlled Discretionary Testamentary Trusts can have significant advantages for your beneficiaries from both an asset protection and tax planning perspective.
Here are the top 8 reasons why you need a Will and why it needs to be kept up-to-date.
1. To ensure your Estate Assets are dealt with in accordance with your wishes
If you die without a Will your assets will be dealt with in accordance with the rules of intestacy which are set out in the Succession Act 2006 (NSW). These rules vary depending on whether you have a surviving spouse or spouses, children and/or other relatives and often will not align with your testamentary intentions.
“That’s not so bad” you might be thinking, and it is true your assets might end up with the person or persons that you intend. However, in many instances the failure to leave a Will results in the need for loved ones, who might otherwise receive little or no benefit, to engage Lawyers and incur costs (and risk adverse costs orders) in order to bring a Family Provision Claim so that the Supreme Court might adjust their inheritance on moral grounds.
2. To appoint a Guardian of your minor children in the event of your death
To appoint a legal guardian for your children in the event of your death you must name someone in your Will. Even if you have separated from child’s other parent, such appointment will assist your preferred guardian to establish or maintain desired parenting arrangements after your death.
If you fail to appoint a guardian for your minor children in your Will and both parents pass away, a person with a sufficient interest will need to apply to the Court to be appointed as a guardian. This could result in a dispute between family members who cannot agree on who is the best person to raise your children and may mean that your children will be cared for day-to-day by someone you did not intend.
3. To ensure your Estate Assets are managed and distributed by someone you trust
Your Will empowers you to appoint one or more persons as your Executors of your Estate. The Executor is the person authorised to administer your Estate and may need to make financial decisions and deal with Estate issues or disputes after your death. The Executor should be carefully selected with these responsibilities in mind and your Will should be updated promptly if a named Executor becomes unable or unsuitable for this role.
If you do not have a Will in place only certain people are entitled to apply to the Court to administer your Estate regardless of their suitability for the role. If multiple people are eligible to apply to administer your Estate, then they must all work together to do so, which invariably increases the likelihood of a dispute arising.
If you fail to appoint a guardian for your minor children in your Will and both parents pass away, a person with a sufficient interest will need to apply to the Court to be appointed as a guardian. This could result in a dispute between family members who cannot agree on who is the best person to raise your children and may mean that your children will be cared for day-to-day by someone you did not intend.
4. To avoid the need for someone to apply for a Grant of Letters of Administration in order to administer your Estate
If you die without a Will or if the Executor named in your Will has died or is unable or unwilling to act, a person may only administer your Estate if they obtain a Grant of Letters of Administration from the Supreme Court.
An application for a Grant of Letters of Administration is tedious. The person applying for the Grant will have to prove to the Court that they have searched for the existence of a Will. At a minimum this means searching through your personal possessions, writing to the NSW Trustee & Guardian and Law Society and several local law firms and banks. To ensure the Estate is distributed in accordance with the rules of intestacy it may be necessary to search for, or apply for, copies of Birth, Marriage or Death Certificates of family members. Further, the applicant may have to lodge an Administration Bond to cover the share of a beneficiary where the Estate is fraudulently or negligently administered.
5. To protect your assets in the hands of your beneficiaries in the event of insolvency or relationship breakdown
If a beneficiary of your Estate is an “at risk” person, such as; a business owner, professional, investor, entrepreneur or property developer, any inheritance they receive under a basic Will will be available to satisfy their creditors or will pass directly to a Trustee in Bankruptcy (if they are a Bankrupt on your date of death).
Where a Will leaves an inheritance for a beneficiary via a Discretionary or Capital Protected Testamentary Trust (even if the beneficiary has substantial control of the Trust), the inheritance can be protected from their creditors and remain available for the benefit of the beneficiary even if they are insolvent at the relevant time.
A carefully drafted Will establishing a Testamentary Trust can also assist to protect a beneficiary’s inheritance from a Family Law property settlement should your beneficiary separate from their spouse after your death.
6. To allow your beneficiaries to generate wealth in a flexible and tax friendly environment
By including a Beneficiary Controlled Discretionary Testamentary Trust in your Will your beneficiaries are able to invest their inheritance via the Trust and to generate income and distribute that income in a tax effective manner.
Unlike a Family Discretionary Trust that is established during a person’s lifetime, where distributions to minor children over $416.00 are taxed at the highest marginal rate which is currently 45%, plus the medicare levy of 2% distributions to minor children from a Discretionary Testamentary Trust are taxed as if the minor were an adult (with the full tax free threshold and marginal rates of tax applicable).
Even where a beneficiary has no minor children who might receive distributions more tax effectively, a Discretionary Testamentary Trust will enable them to distribute income to their spouse or related entities to minimise tax, where possible.
7. To reduce the risk of your Will being contested
In NSW the law effectively imposes a moral obligation on people to make adequate provision in the Will for the maintenance, education and advancement in life of their family members and other eligible people. If you fail to make adequate provision from your Estate for any eligible person, that person may make a claim for provisions under the Succession Act 2006 (NSW) (“Family Provision Claim”).
If your Will is contested your Estate will bear the costs of dealing with the dispute and the administration of your Estate will be delayed until the Family Provision Claim is resolved or determined by the Court.
What is adequate provision is not always obvious and merely being an eligible person will not guarantee them success in respect of a Family Provision Claim.
If you have discussed your current family circumstances and Family Provision Claim laws with an Estates Lawyer and your wishes are documented in a Will having regard to them the likelihood of a dispute arising between your family members or other eligible persons will be reduced and your intended beneficiaries will be able to receive their inheritances sooner.
8. To document your burial or cremation instructions
Having your wishes for the disposal of your body documented in your Will is the best way of ensuring your wishes are carried out and avoiding disputes between your loved ones.
Wills can only be made when you have testamentary capacity. Therefore, now is the time to make or update your Will.
