Estate assets v non-estate assets including trust assets and superannuation benefits

Before you make a Will, it is important to understand the assets you can give away in a Will, and those you cannot. The starting point is to ensure you have appropriate ownership of the relevant asset, which can be more complicated than it initially seems. In addition, there are certain types of assets which generally cannot be dealt with under your Will at all, regardless of ownership. You may need to make additional arrangements to ensure that you have effective estate planning measures in place for these assets.

 

Starting point: do I have appropriate ownership of the asset?

You can only deal with an asset in your Will if you own it.

Clearly, a will maker cannot give away property under their Will if the property belongs to another person.

Additionally, certain types of ownership may restrict the extent to which you can deal with an asset in your Will.

The table below summarises the common types of ownership, and the extent to which you can deal with assets owned in each of those ways in your Will.

Ownership of asset

Can I give the asset away under my Will?

 

Exceptions? Qualifications?

Solely owned assets

Yes.

 

Assets owned in joint names as tenants in common

Yes.

You can only pass your share of the asset under the Will.

Assets owned in joint names as joint tenants

No.

Jointly owned property (including real estate and possessions) passes automatically to the surviving joint proprietor.

You are therefore unable to deal with jointly owned assets in your Will.

If the other joint proprietor(s) of an asset pre-decease you, the asset will become solely held by you and you will be able to dispose of it under your Will.

Trusts

In many cases, no.

The legal title to trust assets is held by the trustee of the trust, for the benefit of the beneficiaries.

As the trust assets are not owned personally by a particular individual in their own right, they cannot be dealt with in a Will.

If you hold the position of appointor or trustee of a trust, you may be able to appoint your successor through your Will: however this depends on the terms of the trust deed.

This enables you to influence which persons have control of the relevant trust and its assets on your death.

If you solely own a specific interest in a trust, such as units in a unit trust, then you can give that interest away in your Will.

Estate assets: what can I give away in my Will?

Gifting an asset

You can give away all real estate and personal property that you own, subject to the commentary in the table above.

Examples of assets you can deal with in your Will include:

  •  a house or property, if you are the sole owner of the property;
  •  your share in a house or property, if you own the property as a tenant in common with another;
  •  motor vehicles;
  •  jewellery;
  •  artwork;
  •  household possessions;
  •  family heirlooms;
  •  the contents of your bank accounts; or
  •  cash.

Any of the above assets can be specifically gifted to another person under your Will.

If an asset is not specifically gifted, it will form part of your residuary estate (that is, the balance of your estate which is available for distribution after all specific gifts have been distributed and all debts and other expenses have been settled).

Gifting a liability

The executor of your estate is required to settle all of your debts and other expenses (including funeral expenses) out of the assets of your estate.

However, if you dispose of property in your Will that is subject to a mortgage, the executor will not be required to deal with that debt, and instead the beneficiary of the property will be responsible for the mortgage over the property.

The exception to this is if you expressly indicate in your Will that you want the beneficiary to take the property free from the relevant mortgage. In this case, your executor will arrange for the debt secured by the mortgage to be paid out of the (other) assets of your estate. However, even in this situation, if your estate assets are insufficient to satisfy the debt secured by the mortgage, then the relevant beneficiary will still be responsible for the outstanding balance under the mortgage.

Non-estate assets: what can't I deal with in my Will?

Jointly owned assets

You cannot deal with jointly owned real estate, motor vehicles, bank accounts or other possessions in your Will.

Any jointly owned assets become the property of the surviving joint proprietor(s) on your death. This is known as the right of survivorship.

However, if you out-live the other joint proprietor(s), the jointly owned asset will become yours and you will be able to dispose of it under your Will as you would any other solely owned asset.

Life interests in assets

You cannot deal with any asset in respect of which you hold a life interest - that is, a right to use the asset during your lifetime.

Such assets will be dealt with on your death in accordance with the Will which conferred the life interest on you.

Adeemed assets

If you make a specific bequest in your Will but then subsequently destroy, sell, or give away that asset, then that bequest is said to be 'adeemed'. In this instance, the bequest is essentially revoked and the relevant beneficiary will miss out. The relevant beneficiary will not be entitled to the monetary value of the adeemed asset (unless your Will contains an express statement to that effect).

However, specific bequests of cash amounts are never adeemed. If there is not enough cash to satisfy a specific cash gift to a particular beneficiary, then the executor will be required to liquidate other assets in your residuary estate to raise the funds to satisfy the cash gift.

Trust assets

The legal title to trust assets rests with the trustee of the trust, who holds it for the benefit of the beneficiaries.

Therefore, as the trust assets are not personally owned by a particular individual, trust assets cannot be dealt with in an individual's Will, regardless of that person's role in relation to the trust.

This is different, however, where you own or hold a direct and vested interest in the trust, such as units in the trust. If you own the units in a unit trust, then you can deal with these in your Will as you would any other financial asset.

Although you are unable to deal with trust assets, depending on the relevant trust deed, if you are a trustee or an appointor of the trust you may be able to deal with the trust's control in your Will by appointing your successor.

For example, the Cleardocs Discretionary Trust Deed allows an appointor of a discretionary trust to appoint their successor through their Will. Under the Cleardocs Discretionary Trust Deed:

  •  the trustee has broad discretionary powers that enables them to distribute income and capital as they see fit; and
  •  the appointor has the power to remove and appoint the trustees of that trust.

Consequently, the appointor's role is arguably more important than the trustee's role! It is therefore preferable for an appointor to specify their successor, to ensure the trust remains controlled by suitable persons. If the wrong people assume control of the trust, then the purpose and operation of the trust as you know it could be fundamentally altered.

The Cleardocs Discretionary Trust Deed does not allow a trustee to appoint their successor by Will. Further, no other Cleardocs trust products allow for the appointment of a successor by Will.

If you do not have a Cleardocs trust deed, you should review your trust deed carefully to determine whether or not there is a power to appoint a successor trustee or successor appointor by Will, and who has that power.

Superannuation benefits

Generally speaking, you cannot deal with your superannuation in your Will.

Your superannuation interest will be distributed by the trustee of the relevant fund (including a self-managed superannuation fund) in accordance with the governing trust deed.

You may have been asked to nominate a specific beneficiary to receive your superannuation benefit on your death. Such nominations may be binding or non-binding on the trustee.

Where you have made a binding nomination, the trustee will make payment of the benefit to the person or persons in such proportions as you may have specified.

Where you have made a non-binding nomination, or have made no nomination at all, a trustee will generally have a broad discretion as to whom the payment should be made.

In some circumstances, the trustee may decide to pay your superannuation benefit to your estate, rather than to a particular person or persons. In these circumstances, your superannuation benefit will be distributed in accordance with your Will as part of your residuary estate.

You should contact the trustee of your superannuation fund, or review your self-managed superannuation fund arrangements, to ensure that you have made adequate arrangements for dealing with your superannuation benefits in the event of your death.

Life insurance interests

In most cases, the proceeds of a life insurance policy will be paid by the insurer directly to the person (or persons) that you have nominated. Accordingly, a life insurance benefit will not form part of your estate, and cannot be dealt with in your Will.

However, as with superannuation interests, in some cases you or your insurer may have decided to pay your life insurance benefit to your estate, in which case it will be distributed in accordance with your Will as part of your residuary estate.

You should contact your insurer to confirm their requirements and to ensure that you have an appropriate and up to date nomination in place.

Essential estate planning resources

Stay on top of issues affecting estate planning with the following resources from Thomson Reuters: Australian Financial Planning Handbook, Death and Taxes and Family Business Succession Guide. Available in book, ebook and online.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and as to speak to a member of the Private Client Services team.

Order Cleardocs Estate Planning document packages