Legal Tip 186: Death and Wills with Assets Held in a Company

Discussion in 'Legal Issues' started by Terry_w, 18th Dec, 2018.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Company owned assets cannot be gifted by a person’s will. This is because they don’t own the assets, the company does. However, if the person owns the shares in the company these shares can be gifted, as long as not owned as trustee.


    Example
    Bart calls the property at 123 Smith street ‘his’ property. But it is owned by a company of which Bart is the director and sole shareholder. Bart simply ignores the existence of the company in his thinking.


    In Bart’s will he leaves 123 Smith street to his friend Millhouse and the rest of his assets to Barney. The property is worth $500,000 and the rest of Bart’s assets are worth $400,000.


    What’s the issue?

    - Bart doesn’t own that property so the gift to Millhouse is invalid,
    - Millhouse gets nothing because of the way the will is worded,
    - Barney gets the shares in the company which owns the property
    - If the executors sell the shares in the company this will trigger CGT.
    - Millhouse gets nothing, but Barney gets about $900,000 worth of assets.
    - Millhouse might have grounds to challenge the will.

    Moral of the story – understand your ownership structure and act appropriately.

    Originally posted at http://www.structuring.com.au/terry/estate-planning/death-and-wills-with-assets-held-in-a-company/
     
    willair likes this.
  2. Bonz

    Bonz Well-Known Member

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    Is millhouse a special friend?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    He is married to Bart's sister
     
    Simon Hampel likes this.
  4. willair

    willair Well-Known Member Premium Member

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    It's interesting the unilateral way that is set up, and millhouse may be not be able to sue successfully ,unless at a high cost to the estate..
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There are actually a few real cases like this - but I can't recall how they ended. Will try to find some.
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have seen many cases of elder abuse / concerns where the parent has transferred (substantial) assets from personal ownership to the business or a specific child prior to death. Unless the transfer can be attacked (ie dementia) then the courts will find the pre-death transfer means the estate lacks the assets that the beneficiaries had thought would be there.