Understanding your succession documents

Gone are the days when a single document was sufficient to direct all decision making powers for a person's affairs during their lifetime or on their death. Generally, the main concerns that cause a person to consider their personal succession position are 'what if I become incapable?' and 'what if I die?'. Currently, there are a number of succession documents that can govern what happens in these instances. These documents should answer questions such as:

  • who is empowered to make decisions on my behalf?
  • what is the scope of that power?
  • what happens to my assets, or control of them, in a particular circumstance?

This article summarises the various succession documents available, what they govern, when they come into effect and how they interact with each other.

The best place to start is the diagrammatic overviews:

Your will and your personal assets

The key person — what does an executor do?

On your death, your executor (or executors) must attend to duties such as:

  • assisting with and paying for your funeral;
  • determining your assets and liabilities;
  • applying to the relevant court for a Grant of Probate of your will;
  • ensuring all your liabilities are paid and then distributing your assets as directed by your will.

If you appoint more than one executor (the maximum allowed to obtain a Grant of Probate is 4 in Victoria, Queensland, Tasmania and Western Australia), then they must act jointly.

Does my will dispose of all of 'my' assets?

Not always. Whilst it is vital that you have a valid will that is appropriate to your circumstances, a will generally only deals with your 'estate assets'. Generally speaking, a will cannot direct the disposition of 'non-estate' assets.

Estate assets are all solely owned property, which include:

  • bank accounts in your name (that is, not in joint names) or your house that you own as the sole proprietor;
  • a person's interest in real property that is held as 'tenants in common';
  • equities and shares in private companies or trustee entities;
  • units in trusts or managed funds;
  • your personal possessions;
  • proceeds under insurance policies in your name;
  • accommodation bonds; and
  • beneficiary loan accounts or unpaid present entitlements with a discretionary family trust.

Non-estate assets generally comprise any of your jointly owned property (that is, as joint proprietors) which passes to the surviving joint owner. It also includes:

  • your superannuation benefits which, by operation of a valid nomination or superannuation trustee's decision, may be distributed straight from the fund to the relevant beneficiary (such as your spouse or any dependent children), rather than becoming part of your estate;
  • assets of trusts in which you have an interest (unit, hybrid and discretionary family trusts) that are generally dealt with by the terms of the trust's deed;
  • proceeds under insurance policies held by your super fund.

You can read more information on estate assets in an earlier ClearLaw article titled "Estate assets v non-estate assets including trust assets and superannuation benefits".

Along with a valid will, it is essential that you understand how your non-estate assets are dealt with on your death and by whom. To assist, I have prepared a diagrammatic overview titled "On your death".

On your death

Assets dealt with by your Will If there is joint proprietorship of an asset, then the asset passes by the way of survivorship for example joint bank accounts or real property held as joint proprietors

Assets dealt with by:
*beneficiary loan accounts of a discretionary family trust are considered estate assets

Your superannuation and savings

Aside from a main residence, generally the largest asset you will have at your death are your superannuation savings.

What happens to those savings (including insurance attached to your superannuation) on your death depends on whether you have a valid death benefit nomination or death benefit agreement in place and, in the absence of those, how any super trustee(s) exercise any discretion they may have.

In relation to this:

  • depending on the terms of your superannuation fund's deed, you may be able to complete a death benefit nomination or death benefit agreement.
  • those arrangements may bind the trustees (for example, a binding death benefit nomination or death benefit agreement) or leave them with some discretion (a non-binding nomination). In either case, super savings can be directed to dependants directly or to your estate to be dealt with under your will.
  • it's important to remember that in the absence of a binding nomination or agreement, super fund's trustees have the discretion to direct where benefits are paid.
  • if at the time of your death, you have no dependants (such as a spouse or children) then the default is generally your estate, meaning your benefits will dealt with under your will's terms.

Trust assets

How assets are dealt with if they are owned by a discretionary (family) trust, unit trust or hybrid trust is almost always governed by the terms of the relevant trust's deed. Often, your death will not require any specific action in relation to how the trust is administered.

Care should be taken to ensure that the line of succession of the role of appointor (who has power to remove and appoint trustees) is appropriate in any trust that you control or in which you have a significant interest. Many discretionary (family) trust deeds provide the succession of the appointor as follows:

  • the named appointor;
  • the named appointor's significant other;
  • the first appointor's children; and then
  • the default being the last surviving appointor's legal personal representatives (being their executors and trustees).

When you have significant trust assets, the choice of the appointor (or those in the chain of succession to the role) is crucial.

Depending on the terms of the trust's deed, your will may be able to provide direction regarding succession to roles in relation to a trust. Finally, remember that, if you own shares in a company that acts as a corporate trustee of a trust, then those shares are estate assets meaning they will be dealt with by your will's terms.

Powers and decisions when you lose capacity

This diagram headed 'If you become incapable' shows what types of decisions are governed by which power of attorney or guardianship documents.

If you become incapable (NSW and Victoria)

Powers of attorney, in various forms, allow decisions to be made on your behalf while you are alive, but lack capacity. You can nominate that a power can become effective:

  • immediately; or
  • only when you are certified by a medical practitioner that you have lost capacity.

Under a Victorian Enduring Power of Attorney (Medical), Enduring Guardian and the NSW Enduring Guardian and Advance Health Directive, your appointed agent or guardian may only make decisions if a doctor certifies that you are not capable of providing direction.

In the absence of a validly executed power of attorney or guardianship documents, your family often has no option but to make an application to a tribunal for guardianship and administration orders. This can be a distressing and expensive process and is easily avoided by ensuring that you have the appropriate power of attorney documents in place.

Any powers conferred by you on an attorney by power of attorney end on your death.

Loss of capacity and lifestyle decisions

Increasingly, it is becoming necessary for a clear line of decision making to be established in relation to lifestyle decisions if a person loses capacity to make those decisions. This is particularly relevant in circumstances such as securing aged-care accommodation.

The NSW and Victorian Appointment of Enduring Guardians enable an appointed guardian to make lifestyle decisions on your behalf, including:

  • where you live
  • who has access to you;
  • whether you can work; and
  • healthcare decisions.

Your guardian must not make decisions that conflict with your interests and where possible should make the same decision that you would make in the same circumstances. It is important that any guardian that you are considering appointing be aware of your wishes regarding your lifestyle.

Loss of capacity and financial and legal decisions

The most commonly donated (and best understood) power relates to financial and legal decisions.

You can stipulate that the power commences on:

  • a particular date; or
  • when the document is signed; or
  • after a particular event has occurred (such as loss of capacity).

You can stipulate that the power ceases if you become incapable or that it continues after incapacity.

Like appointing an executor under your will, an attorney appointed under a Victorian Enduring Power of Attorney (Financial) and the New South Wales Power of Attorney (Financial) is a very important appointment, because it vests significant obligations and powers on them. You must be confident that the person you chose has the appropriate skills to manage your financial and legal affairs and to act in your best interests.

Loss of capacity and medical treatment decisions

If you are temporarily or permanently incapacited, then you may receive emergency medical treatment without your consent. In all other circumstances, you must consent to receiving medical treatment.

However, if you are not capable of providing consent it can make things difficult for doctors particularly if there is a dispute amongst your family.

In Victoria, an Enduring Power of Attorney (Medical) and an Enduring Guardian provide the appointed medical treatment agent or guardian with the authority to make health care and medical treatment decisions on your behalf. This does not enable the medical treatment agent to make decisions in relation to palliative care or to refuse lifesaving treatment.

In NSW, the Advance Health Directive sets out your wishes regarding whether you wish to be put on life support or if you do not wish to receive medical attention that may prolong their life.

More information from Maddocks

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

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of estate planning topics.

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