How do I protect my assets in a volatile COVID market?

The current COVID-19 climate should serve as a reminder and an opportunity for people to consider their legal affairs, and how they can protect the value of their assets for future beneficiaries. The last 6 months have been characterised by instability in the share and property markets and economists are uncertain about what the future holds.

Therefore, it may be a sensible time to begin to turn your mind to how you can protect the value of your assets in the volatile COVID market, and more broadly, ensure that your succession planning reflects your wishes.

Proper succession and estate planning aims 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 that wealth benefits future beneficiaries;
• take account of changes in circumstances - whether of the willmaker or their beneficiaries - for instance, to take into account changes of occupation, employment or domestic relationships, or moving into retirement.

This article covers some ways to protect the value of your assets for future beneficiaries.

Wills

A valid will guards against the consequences of sudden accidents or debilitating illness, and ensures that your assets are dealt with in accordance with your wishes after you pass away.

Wills only deal with assets which are owned personally at the date of the a person's death. Any assets which are jointly owned will automatically pass to the surviving co-owner.

There are many considerations which people should turn their minds to when making a Will, such as:

• who they should appoint as their executor(s);
• whether or not it is appropriate to provide for the appointment of a guardian for any children under the age of 18;
• whether or not to make any specific gifts of particular items, amounts or property;
• who is to receive the residuary estate (your net assets) after payment of any debs or liabilities; and
• whether or not to establish a testamentary trust, which is a legal structure - similar to a family discretionary trust - which is created under the will, and comes into existence on death, and which provides advantages in relation to asset protection and income tax (for instance, the tax which applies to income distributed from the testamentary trust to beneficiaries under the age of 18.)

Testamentary trusts

It is worth considering setting up a testamentary trust under your will if you wish to:

• protect your estate from beneficiaries' creditors (for example, protecting it from being split as part of a divorce settlement or bankruptcy proceedings);
• benefit from tax advantages; and/or
• exercise a level of control over how your assets will be managed by your beneficiaries.

Moreover, the trustee of the testamentary trust will look after the assets until beneficiaries are ready to inherit them. This may be appropriate in circumstances where your beneficiaries:

• are under the age of 18;
• have limited mental capacity; and/or
• should reach a certain stage of life before they can inherit the assets.

Trust assets (and how to plan succession)

A will cannot directly determine what happens to assets held in a trust at the time of your death.

The trust's deed will determine what happens to assets of a family or unit trust. Generally:

• standard trust deeds do not deal with the succession of your trust in the event of your death or incapacity, your trust will continue to operate on your death;
• trust assets will be controlled and managed by whoever controls the trust; and
• although your will cannot deal with trust assets, it can affect how the trust is controlled.

If you have a family trust, it is important to consider a succession plan to ensure it aligns with your family objectives.

Some options for the succession of your trust include:

• termination of the trust if a nominated person dies;
• maintaining the trust as it stands; or
• maintaining the trust but altering its terms and ensuring it is clear how the trust is controlled and by whom.

A will can address control of a trust by, for example:

• transferring units in a unit trust (where they are held by the deceased) to a particular person, or to be settled on the testamentary trust;
• transferring any shares in the trustee company to a particular person or to be settled on the testamentary trust;
• appointing a replacement appointor of a family trust.

Superannuation

It is important to nominate who your superannuation benefits will go to. How this is done depends on the rules of your fund - dealing with superannuation cannot be achieved under your will except to a limited extent, say where:

• you have a SMSF and you own a controlling number of shares in a corporate trustee;
• your will transfers the shares to a particular person, who appoints themselves as director and makes decisions about what happens to your superannuation benefits.

However, this is a fraught and risky means of dealing with your superannuation.

Good planning is always the way to go. It can involve completing a death benefit nomination or binding death benefit agreement through your superannuation fund. By doing this, you will bind trustees to direct funds either to dependents directly or to your estate to be dealt with by your will.

Powers of attorney

When thinking about succession planning, you should also consider giving effect to an Enduring Power of Attorney and an Appointment of Medical Treatment Decision Maker.

You should ensure these documents are in place to guard against the implications of mental health, age-related cognitive decline and sudden accidents.

This is particularly important given the current climate, and any concern you may have in respect of complications arising out of decisions which you may need to make on behalf of someone, or decisions which someone else may need to make on your behalf.

These important documents allow an attorney to 'stand in your shoes' to execute documents and acquire and dispose of assets on your behalf.

Financial matters include any legal matter connected to the financial or property affairs of the individual.

Medical treatment matters include, but are not limited to, treatment with physical or surgical therapy (such as dressing a wound or an operation), treatment for mental illness, or treatment with prescriptions.

How can Cleardocs help?

You can read more about the products available through Cleardocs to assist you with your succession planning on their website and further information can be found in our earlier article here:

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of estate planning topics here, including the following articles:

• Your lock-down to-do list - Estate planning

Order Cleardocs Estate Planning document packages

• ClearWill Online
• ClearWill with Testamentary Trusts
• Appointment of Enduring Guardian NSW
• General Power of Attorney (Financial) NSW
• Advance Health Directive NSW
• Appointment of Enduring Guardian VIC
• Enduring Power of Attorney (Medical) VIC
• Enduring Power of Attorney (Financial) VIC