Most people have a general understanding of what a Will is – a document that sets out your wishes in relation to your assets when you die. However, what a lot of people don’t realise is that not all of the things you might consider to be ‘your assets’ can be included in your Will. This article lists some of the things that don’t go in a Will and how you should deal with them instead.
If you are a beneficiary of a discretionary trust (often called a family trust) your interest in the trust cannot be included in your Will. This is because beneficiaries of a discretionary trust do not have a defined interest in the trust, instead their interest is at the discretion of the trustee (hence the name discretionary trust).
If you have a family trust, it is important to be aware of who the appointor and substitute appointor(s) of the trust are. Often people think the trustee is the most important role in a discretionary trust because they determine which beneficiaries receive income or assets of the trust and in what proportions. However, the appointor can remove the trustee and appoint a new trustee at any time (they can also appoint themselves as trustee) and they also often have to approve any variations the trustee wants to make to the trust deed.
We recommend having someone trustworthy in the role of appointor. It’s also a good idea to have a substitute appointor so if the first appointor dies or becomes unable to act, there is someone who can step into the role. If you are the appointor of a trust and there is no substitute named after you, you can also include a direction in your Will as to who the next appointor should be. Best practice would be to have both.
When deciding who the appointor and substitute appointor(s) should be, make sure they are someone who is willing and able to act if they need to. For example, if you name a minor child as the substitute appointor of your family trust and the first-named appointor dies or becomes incapacitated, the minor child will not be able to step into the role.
Often people are surprised when we tell them that superannuation does not automatically form part of their estate. To nominate who your superannuation will go to when you die, you need to complete a binding death benefit nomination. This is something that you can do directly with your superannuation fund (they will have a form you can complete) or by fulfilling the requirements set out in your SMSF trust deed in relation to binding death benefits.
Often superannuation funds will give you the option of making binding or non-binding nominations. If you make a non-binding nomination, the super fund does not need to follow your direction, so we recommend making a binding nomination. They also often give you the choice of making a lapsing or non-lapsing nomination. We recommend making a non-lapsing nomination so that you don’t have to keep re-doing it every few years.
If you do not have a binding death benefit nomination in place when you die, your superannuation fund will have the discretion to determine who receives your superannuation.
There are a limited class of people who you can nominate in your binding death benefit nomination, such as spouses, children and financial dependants.
Although your superannuation doesn’t automatically form part of your estate, you can choose for it to go into your estate. If you would like this to happen, you should do a binding death benefit nomination that nominates your “legal personal representative”. This will mean your superannuation will go into your estate and be dealt with in accordance with your Will.
For tax purposes, if you have children of different ages you might consider bringing your superannuation into your Will and leaving it to any child who is under 25 at the time of your death and leaving your other assets (up to the same value) to your older children.
If there is someone who you think may contest your Will, it can be a good idea to leave your superannuation out of your Will (ie. nominate a person directly via a binding death benefit nomination). That way, the value of the estate that is being contested is smaller.
Life insurance is much like superannuation. If you have life insurance separate from your superannuation you should also make a nomination with your life insurance as to who you want to receive that asset when you pass away.
If you are a director and/or shareholder of a company, you should have succession plan for the company shares a shareholders agreement and/or a buy/sell agreement. Shares held in a company (if they are held in your personal name, as opposed to being held by a trust) will form part of your estate because they are assets that you own. If your shares give you a right to appoint a director, then you should consider who you are leaving your shares to and whether that person will be willing and able to run your business.
If there are multiple shareholders, we recommend having a shareholders agreement that deals with what happens when one shareholder dies.
Jointly owned assets
Any assets that you own jointly with another person/people will often not form part of your estate. Instead, they will pass automatically to the surviving joint owner(s). Common examples include a couple that has joint bank accounts or a house that is owned by two people as joint tenants.
In both of these examples, when one joint owner dies, the asset will pass to the other joint owner regardless of what the deceased joint owner’s Will says. This means that jointly owned assets cannot be contested by anyone contesting a Will. Sometimes people use joint ownership as a tactic to make their estate smaller if they are worried that someone might contest their Will.
We recommend seeking legal advice before making a Will. There are a lot of considerations, such as the ones discussed in this article, that need to be addressed when making a Will to ensure that your wishes are carried out in the way you want them to.
Lynn & Brown Lawyers have a team of lawyers who specialise in Wills and estates who can assist you to prepare an effective and legally sound Will.
About the authors: This article has been authored by Chelsea McNeill. Chelsea is a lawyer that graduated from Murdoch University.