Legal Tip 1: Draw up a will

No posts yet in the legal forum so to kick it off here is a tip.

If you die without a will the intestacy laws will apply. Normally the spouse will take the assets of the deceased (if no children of another relationship), but if there is no spouse then the children will take the whole estate between them.

A minor child is able to take their interest (in an intestacy situation) immediately (in NSW) due to s128 of the Succession Act
http://www.austlii.edu.au/au/legis/nsw/consol_act/sa2006138/s138.html

Imagine what a 15 year old could do with $1,000,000.

To control things a bit more you could draw up a will and leave the estate to a trustee (of a simple bare trust) until the children reach the age of say 25. (or better yet a testamentary trust with control passing when they reach 25).

 

What's the difference between a TT & a BT?

 

A bare trust is where A owns for B with no discretion. A 'testamentary trust' generally refers to the more complex discretionary or unit trusts set up in a will. However both a really testamentary trusts. What you need is a testamentary discretionary trust.


A testamentary trust is any trust formed in a will so it could be a simple trust along the lines of:
"I leave $500,000 to Scott to be held in trust until he is 18"
or it could be
"I leave $500,000 to the trustee specified in clause 12 under the terms below" and then go on for 30 pages.

The trouble with the first one is that when Scott is 18 he can take the money and run - spend it all in one night perhaps. The second one may be a complex discretionary trust which may or may not give Scott control of the trustee position and there will be other potential beneficiaries other than Scott - his spouse, children, grandchildren etc.

The benefit with the second one is many:
1. Control from the grave to a certain extent
2. General tax savings
3. Ongoing tax savings with children being taxed as adults = approx $20k pa tax free per child.
4. Asset protection on bankruptcy
5. Asset protection on divorce that is greater than non will trusts
6. Estate planning advantages

 

Thank you Terry.

Can I ask, I know this will likely vary greatly depending on who you engage for this activity, though just want to get an indication on how much it would cost to setup a will/structure as described above for a family with 2 young dependants?

 

Could you use that to specify an annual ongoing figure (until empty?) Instead of a lump sum? Eg leave $1mil to John to be left in high interest bearing account and distribute $100k per year to him

 

I charge around $2000 with advice on superannuation succession and insurance issues. Less for clients of my other businesses. Multiple Tailored trusts too.

I should point out also that you should not leave anything to an existing discretionary trust because you won't get the maximum tax benefits (generally). And some lawyers use a simple will and then just staple a 'normal' discretionary trust deed to it - this should be avoided.

 

Yes. But you want to consider what could happen if the income is not high enough, or maybe much more than the $100k. Also low asset protection if John becomes bankrupt at some future as the income could be taken by the creditors. Capital would be protected.

 

Thanks Terry

 

Terry can you recommend any books on trusts for beginners and in plain English?

 

Thanks for the tip Terry. I have always appreciated your posts from a legal perspective. Now you have started, I think we should see another 51 tips in the next 51 weeks?

 

you could try my book with Coastymike (its free)
Trusts and Tax for Property Investors E-Book
http://www.propertytaxsolutions.com.au/

I am writing another one more in depth on trusts concentrating more on the legal side. Maybe another year away.

 

days not weeks! One per day.

 

The Tax Institute have a few excellent trust publications for novices. Written for advisers but easy to understand. Not cheap but quality.
http://www.taxinstitute.com.au/publications/books/trust-structures-guide