The aim of proper succession and estate planning is to preserve the value of an individual's wealth (whether owned personally or via other means such as super funds, companies or family trusts) and ensure it continues to benefit intended beneficiaries into the future. In doing so, the individual seeks to avoid adverse consequences for either themselves or their intended beneficiaries in the event that circumstances change, for example, change of occupation, employment, domestic relationship and moving into retirement. This article outlines the benefits of succession planning, while focusing on points such as achieving tax savings on distributions after your death, protecting your beneficiaries' inheritance and guarding against mental health, age and sudden accidents.Georgia Koskinas, Maddocks Lawyers
The start of a new financial year should serve as a reminder for people to review their personal and business objectives, and plan for how those objectives will be met into the future.
Failure to give attention to, or to document succession and estate planning objectives can lead to:
A testamentary trust is a mechanism which can save a beneficiary significant amounts of tax (as well as offer asset protection from loss through divorce, waste or other disasters). Quite simply, a testamentary trust is a trust created in accordance with a will.
A testamentary trust is the preferred vehicle if a will maker wishes to:
There are different types of testamentary trusts, such as:
For more general information in respect of testamentary trusts, you can read this article here.
A testamentary trust has the significant advantage of enabling the trustee to stream or split income amongst the trust's discretionary beneficiaries in a way that minimises overall tax paid on the trust's income. The beneficiaries that receive the trust income then include this income in their own assessable income which is taxed at that individual's marginal tax rates. By streaming income to beneficiaries with low marginal tax rates, a trustee is able to minimise overall tax paid by beneficiaries.
There are also capital gains tax benefits of using a testamentary trust. Any capital gain made by a trustee of a testamentary trust from a Capital Gains Tax asset passing to a beneficiary of the trust will be disregarded by the Commissioner for Taxation. For more information on this point, you can view this article here.
You can assist in protecting the inheritance of beneficiaries by avoiding giving direct personal gifts to beneficiaries and by building into the testamentary trust mechanisms to allow for flexibility or to shore up protection, including:
Estate planning clients often express concern as to what will happen to an inheritance that they may wish to leave to a child if the child's relationship dissolves.
In that case, control of that testamentary trust is key:
Powers of Attorney and Appointment of Medical Treatment Decision Maker
When executing a will, an individual should also consider giving effect to an Enduring Power of Attorney (EPOA) and an Appointment of Medical Treatment Decision Maker.
When guarding against the implications of mental health, age and sudden accidents, an individual should ensure to having these documents in place, as each of these will assist in facing the changing needs and changing capacity requirements which may arise as a result of increasing age and in the event of a sudden accident.
Appropriately drafted will
An appropriately drafted will, reflecting the testator's wishes, can also guard against the consequences of sudden accidents and age occurring in relation to beneficiaries.
If a testator's will includes provision for beneficiaries suffering from a disability, a special disability trust or other trust which offers Centrelink relief may be suitable.
Cleardocs carries out its annual review to ensure that your succession and estate planning documents remain compliant with the law and easy to understand.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of estate planning topics here.
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.