Wills and Deceased Estates
Drafting your Will is an activity which requires special skill to help minimise tax and to help ensure the outcomes you want. Managing a deceased relative’s estate and appointing an executor of your estate are other important areas for advice.
Click on the questions below to reveal the answer.
Why should I make a Will?
In summary, to make sure that the people you want to receive your assets after you die do receive them. A Will helps ensure this happens and occurs with minimum legal costs and in a tax effective manner.
There can be significant consequences if no Will exists or the Will you do have does not meet the legal requirements – as can, for example, be the case with will kits. If you do not have a Will, then your estate will be distributed according to Estate law and this may not be how you want your estate to be distributed.
Why should I pay someone to make a Will when I can make my own?
After you die, the last Will that you make must be submitted to the Probate Court to check that it is a valid Will and complies with all of the rules regarding Wills. If any rule regarding Wills is not met, the Court will ask for extra information and documents to be lodged with the Court. This puts your estate to added legal expense and delays the administration of your estate.
Preparing your own Will with the help of a book or internet forms can be a costly mistake. If you do not know and understand the rules regarding Wills and how they apply to your situation, any mistakes will not be discovered until after you die. It is cheaper to ensure that your Will is correct before you die than it is for your executor to fix mistakes after you die, thus adding further costs to your estate.
Why should I consider estate planning?
Estate Planning is not ‘one size fits all’. Unless you are a solicitor or an experienced Wills and Estates Administrator you have no way of knowing whether the document you have prepared is appropriate for your individual situation. A trained and experienced professional estate planner can envisage circumstances that you may not consider, can identify potential problems and fix them. He or she can dramatically improve the chances of your plan actually working as anticipated.
Scammell & Co. will look at each person’s individual circumstances and then advise on various estate-planning strategies that can be used to give your beneficiaries the ability to:
- Minimise taxes on income earned from their inheritance.
- Retain their inheritance for your descendants only.
- Protect vulnerable or incapacitated beneficiary’s inheritance.
What is a grant of Probate?
A Grant of Probate is a Certificate from the Probate Court which:
- Verifies that your Will is legally valid.
- Gives the Executor that has been appointed in your Will, the power to deal with your assets and administer your estate.
If you do not have a Will, the Court will appoint your next of kin to be the Administrator of your estate.
One of the reasons for the formal Grant of Probate process is to prevent fraud.
What is wrong with completing a will kit?
Will kits are designed to cover only the most basic circumstances and will kits do not always comply with South Australian laws and provide for variations in people’s circumstances. There is no personal attention or advice on the legal consequences of certain estate planning choices. They do not offer the opportunity for beneficiaries to minimise tax, or protect their inheritance against claims by others.
In many cases, when a Will made from a will kit is submitted to the Probate Court, after a person’s death, the Court may require additional documents to be provided before that Will can be proved. The costs of each of these documents is usually in excess of the cost of having a standard Will made by a law firm. The added costs and delays often cause the deceased’s family stress, which could have been avoided.
How does tax affect my estate?
The way in which your Will is worded can affect the amount of tax that your beneficiaries pay on their inheritance from your estate. This includes Capital Gains Tax on disposal of assets, penalty rate of taxes for underage beneficiaries and also income tax.
How are minors taxed on their inheritances?
If you structure your Will using a Testamentary Trust, minor beneficiaries can avoid losing considerable amounts of their inheritance to tax.
A minor beneficiary receiving income from a Trust created in your Will can receive $18,200 per year tax free before paying concessional tax rates as follows:
|Taxable income||Tax on this income|
|0 - $18,200||Nil|
|$18,201 - $37,000||19c for each $1 over $18,200|
|$37,001 - $87,000||$3,572 plus 32.5c for each $1 over $37,000|
|$87,001 - $180,000||$19,822 plus 37c for each $1 over $87,000|
|Above $180,000||$54,232 plus 45c for each $1 over $180,000|
The above benefits, using a Testamentary Trust, can be contrasted with the much higher rates which apply to a minor beneficiary under a trust not arising from a Will. Those rates are as follows:
|Taxable income||Tax on this income|
|0 - $416||Nil tax|
|$417 to $1,307||66% on amounts from $416 to $1,307|
|Over $1,307||45% of the total amount|
What is a Testamentary Trust?
A Testamentary Trust is created by your Will, but only comes into effect upon your death. You decide on the rules and terms of the Trust – such as who the Trustee will be. The terms of the Trust are set out in your Will and after Probate is granted the Will becomes the ‘Trust Deed’.
The Trust can be as flexible or as inflexible as you want the Trust to be.
What type of trusts are made in a Will?
There are many different types of Testamentary Trusts and they are used for many different reasons, depending on a family’s individual circumstances.
Some trusts can be very flexible such as primary beneficiary controlled trusts and others that are more restrictive. For example a protective trust which can be established for a beneficiary with a disability or spendthrift who is not able to manage his or her money.
- A disabled person’s trust.
- A spendthrift person’s trust.
- An income maintenance trust.
- A capital protected trust.
- A staggered time release trust.
- A protective trust.
- A beneficiary controlled trust.
- A fixed life interest trust.
- A flexible life interest trust.
Why might it be better not to leave assets directly to a child or children of adult age?
The answer is the example of Mrs Smith who was adamant that she wanted a simple Will that left the whole of her estate equally to her three adult children James, Alison and Beth. After her death the results were not what Mrs Smith would have wanted.
A1. James was a high income earner and when he invested his inheritance this resulted in his annual income being subject to the highest tax rate of 45%. He used the remaining 55% of the income to pay maintenance for his two families. The maintenance was paid in ‘after tax’ dollars.
James would have preferred to be given the option to establish a Testamentary Trust with his inheritance so that he could distribute $54,000 of the income to his wife and children tax free and then pay the concessional tax rates.
James owned his own company and ran the risk of being sued personally through his line of work. If his inheritance was in a Testamentary Trust the assets may have been protected from claims if he was ever sued.
James died a few years after his mother and his widow, Josie, married Bob the Builder. When Josie died, Bob the Builder successfully contested Josie’s Will. The result is that Mrs Smith’s estate eventually ended up with Bob the Builder’s family, not Mrs Smith’s own grandchildren.
If James’s inheritance was in a Testamentary Trust then on his death his inheritance could have stayed in the Trust and when Josie died her new husband, Bob the Builder, would not have been able to make a claim The inheritance would have gone directly to Mrs Smith’s grandchildren rather than to Josie’s new husband.
A2. Alison and her husband are divorced. During her marriage Alison had nothing to do with her husband’s business but she had signed a personal guarantee to the bank. The divorce did not discharge her from the bank guarantee, and she did not get advice from a family lawyer at the time of the divorce. Alison was relying on her inheritance from her mother to raise her two minor children. Alison’s former husband’s business was in financial difficulty and her ex-husband’s creditors received the whole of Alison’s share in her mother’s estate. None of the estate benefited Alison or her children.
A3. Beth is unemployed and a compulsive gambler. A Protective Trust would have ensured that Beth’s inheritance would benefit her rather than being lost to the casino and poker machines.
Is it more expensive to make my Will using a solicitor, when compared with using a Trustee Company?
No, in fact the opposite is the case. A Trustee Company will prepare your Will for no charge or a minimal charge if you appoint it to be your Executor. After you die, the Trustee Company charges commission on the gross value of your estate (not the net value). For example, if you own a house valued at $400,000 with a mortgage of $300,00 the commission charged by the Trustee Company is on the value of $400,000 and can be as much as 8% of the gross value.
Also, your beneficiaries have no choice in the administration of your estate and if unhappy with the Trustee Company they cannot remove the trustee company and appoint another Trustee Company.