Legal Tip 335: Death, Beneficial Ownership and Inheritance

When a person dies their assets pass on, this includes assets that they beneficially own but don’t legally own. An example of this would be the beneficiary of a bare trust or the death benefits of super (which is a bit different).


Example

When Bart was young Homer purchased a property as trustee for Bart. It was set up as a bare trust with Homer being the legal owner and Bart being the beneficial owner. For tax purposes it was Bart who was assessed on the rental income and treated as the owner of the property.

Bart becomes 18 and they plan to transfer title to Bart, but it gets pushed into the too hard basket.

Bart dies a short time later while on his honeymoon.

Bart didn’t legally own the property, but it will still pass as part of his estate. Being young, Bart didn’t have a will so it would pass via the intestacy laws to his new spouse. That spouse could demand Homer transfer title to her/him.

 

This issue from the perspective of trusts and companies would make a interesting tax tip regarding estate planning and succession etc and how that interacts with wills.

 

What happens if Homer dies before Bart?

Does Bart (as beneficiary of bare trust) automatically become owner of property, regardless of Homer’s will?

 

It would depend on the terms of the trust. If Bart was a minor a new trustee might need to be appointed by the courts if there was no deed or perhaps his legal guardian would hold them. Bart is the owner of the assets, they are just held in someone else's name.

 

I’m thinking more of the common situation of a bank account which was opened when the child was a minor, which is held in trust by an adult, but there is no formal trust deed etc. what happens when the adult dies, it doesn’t need to be mentioned in the will? But executor would be able to either transfer to child if they are now 18, or organise a new a Trustee?

 

That would not be an estate asset and couldn't be dealt with under the will.

The trustee would need to be changed if the beneficiary was young, but if they were older the beneficiary could take title. I imagine the bank would allow a surviving parent to be the sole trustee if the child was still young, or the child's legal guardian.

 

If let say both parents died, and the guardian appointed is overseas resident, or might be deceased as well. The children are minor age, and are beneficiaries.

The parents wish the death benefit received from life insurance to be used to pay off outstanding loan for PPOR. Is there anyway to arrange this?

What will happen if the guardian is overseas or deceased?

 

What do you mean by guardian?
There is a distinction between a trustee and a guardian. A trustee is the one owns assets for someone else, a guardian of children is their legal 'parent'.

A person can have their superannuation death benefits paid into the estate and the will can then specify that the proceeds be used to pay out any outstanding debt at that remains.

The trustee would need to be a resident of Australia for tax purposes otherwise the estate will be classed as a foreign trust and lose a lot in tax.

You need legal advice as lots of issues to consider.

 

Banks dont generally allow this and recognise a child at age 16 can operate a bank account and will require parental trustee removal. I know all my kids were hounded by Westpac and by a specific age if they hasdnt acted the bank would freeze the account. The bank basically gives authority to the parent until the child attains a suitable age. Then the bank seeks to push them out and ensure the child is ID'd and has their own access. They dont want liability because a controlling parent misuses the kids $$$. Probably varies by banks but surely similar.

 

Didn’t happen like that with my daughter’s ANZ account. Nothing happened automatically, and even when I/we contacted ANZ to set up her online access to her account, she has access to her spending account, but I have “kept” her savings account. (Daughter knew if she had it, it would also turn into a spending account!)