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Legal Tip 81: Reducing chances of assets falling into the wrong hands at death

Discussion in 'Legal Issues' started by Terry_w, 4th Oct, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Reducing the chances of your assets falling into the wrong hands at death

    Asset protection in the sense of preventing your assets falling into the wrong hands after your death.

    Wills are the first thing to draw up. But keep in mind the person you leave things to will also die at some point. So leaving everything to the spouse may not be good if they get remarried after you die. A testamentary discretionary trust or two in the will can help you rule from the grave to a certain extent. it can also help the children preserve the assets inherited if they become bankrupt, divorced or themselves die.

    But wills can be challenged and they can be invalid so perhaps your will won’t work. In this case the intestacy laws will apply. Perhaps these laws should be considered just in case.

    Owning assets as Joint Tenants will prevent those assets being part of your will - if you die before the other joint owner. But they could die first and then the asset would pass via your will. So make sure you take them into account. Joint Tenancy can also be challenged in some limited circumstances, especially where the tenants are not spouses.

    The obvious way to prevent assets passing to the wrong person is to give them away before you die. But this generally has stamp duty and CGT issues and is not always attractive.

    Using different structures to control assets can also prevent them forming part of your estate and there have less chance of the assets falling into the wrong hands. Trusts are an example. If the trustee or the controller dies the assets of the trust continue on under someone else’s control. Just make sure the control falls into the right hands. If you operate companies then consider the shares as although you cannot pass on company assets you will have to pass on any shares you own in the company and the shareholders will then control the company and its assets.

    Don’t forget your superannuation. It could be larger than you think with life insurance. So make sure you have a binding death benefit nomination in place and that this is valid.

    Spending the inheritance on yourself is a good idea sometimes too. You want your last cheque to bounce ideally.

    And lastly, avoid all connection to NSW if you can. NSW has what is known as notional estate orders. These are orders that the court can make against assets you do not own. e.g. trusts can be attacked if you are the appointor or trustee. Joint tenant property can be attacked, super can be attacked and even property disposed of within 3 years of your death can be attacked, especially gifts.

    Another angle is to openly discuss your plans with your relatives. Sometimes the shock of seeing where the assets are going to cause anger and resentment which can lead to attack. But if the family knows your plans and you can talk about it beforehand then when the time comes it will be less of a shock and this may lead to a smoother transition without court cases.

    if you do specifically want to exclude someone then set out your reasons and evidence in the form of an affidavit so this can be used as evidence after your death - you won’t be around to give evidence yourself.
     
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  2. MTR

    MTR Well-Known Member Premium Member

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    Thanks Terry
     
  3. Kangaroo

    Kangaroo Well-Known Member

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    Hi, Terry, Love your insight.

    If we( wife and husband) die and we have a testmentary discretionary setup in the will to transfer all our assets into this trust, how does CGT and stamp duty work here ?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No duty or CGT on the transfer from you to your executor or to the trustee. In some cases it may be able to go from the trust to a beneficiary without duty or CGT being triggered too.
     
  5. Kangaroo

    Kangaroo Well-Known Member

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    Thank you Terry. That solved my worry while in the grave.

    Now while still alive and having a bit of breathing,
    What is the best way to transfer our asset to the family trust while we are still alive ? without paying too much CGT and stamp duty ?
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    Die? :p

    If it were a unit trust you might be able to transfer to smsf at no cost. Not really any options for family trust that I know of.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep, the best way is to die. This is really the only way to avoid both stamp duty and CGT being triggered - as well as provide great asset protection.

    If you transferred to a trust while alive there would also be less income tax benefits to children, s104AG benefits.
     
  8. Kangaroo

    Kangaroo Well-Known Member

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    Is it feasible to accumulate as much asset as possible in SMSF, then transfer/sell them to family trust after say 65, without paying CGT at least ?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Maybe, but stamp duty would apply on the transfer. And there are many other issues to consider such as lack of leverage inside the SMSF.
     
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  10. Kangaroo

    Kangaroo Well-Known Member

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    Thank you so much Terry.
     
  11. SouthBoy

    SouthBoy Well-Known Member

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    @Terry_w, who keeps this affidavit?
     
  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    Same place you keep your Will
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, you have to make sure it is found after your death. So best to keep it with your will. Also make sure there are email copies to your lawyer so these can be used if originals go missing.
     
  14. D.T.

    D.T. Adelaide Property Manager Business Member

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    Provides an interesting conundrum for providing passwords to your computer / email program?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep. If you email an item the recipient will have a copy - and keep it hopefully.

    But other stuff such as photos and financials may not be able to be accessed if there are passwords on the files or on the computer. You can leave passwords in a list with your will, but sometimes passwords are changed...
     
  16. Handyandy

    Handyandy Well-Known Member

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    One asset that hasn't been discussed is any frequent flyer point / credit card points.

    My recent experience with credit card points was that the solicitor adviced the bank of the persons passing and the account was closed and a $1000 worth of points was lost.

    What is the normal procedure for dealing with these or are the banks and airlines a law on to themselves?

    Cheers
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Never even thought of those Handyandy.

    You would have to read the terms of the agreement with the point provider and see if they are an asset that can be transferred by death. probably not I would imagine.

    All credit card contracts would provide that the account is closed at death of the main card holder. otheriwse others could use the card and rack up a debt.
     
  18. Agent99

    Agent99 Well-Known Member

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    great advice yet again.
    Thank you Terry W
     
  19. Befuddled

    Befuddled Well-Known Member

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    What's involved with setting up a testamentary discretionary trust?

    Obviously subject to complexity but what's a ballpark estimate on how much it costs to set one up?
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A testy (to use the legal jargon) is incorporated into a will. The person has to die before it is established, but it is set up to commence on death.

    I charge $1650 to about $2.5k depending on how complex.