Minimising assets in an estate that is subject to challenge

From
Brian Hor

Brian Hor

Brian Hor at Townsends Law thinks there should be some thought given and preparation around seeking to minimise challenges to an estate by making pre-emptive decisions, such as:

Transferring assets before death

Transferring assets during the owner’s lifetime to one or more persons being the intended beneficiary/ies of the assets after the owner’s death. Depending on the type of assets and the relevant State or Territory, such transfers may incur costs such as capital gains tax, stamp duty, and legal transaction fees. This strategy may include transferring part of an asset rather than the whole asset, e.g. transferring a half share in a piece of real estate to another person so as to hold the asset as joint tenants with them.

However, transferring assets during the owner’s lifetime to one or more persons being the intended beneficiary/ies of the assets after the owner’s death may still incur costs such as capital gains tax, stamp duty, and legal transaction fees. Plus, what happens if later down the track the owner realises that they should not have transferred the assets because:

(a)   The owner has had a falling out with the transferee/s and no longer wants them to be the beneficiary of the assets. Of course, it’s too late now to change your mind, and even if the transferees were agreeable there may be costs such as capital gains tax, stamp duty, and legal fees that would be incurred if the assets were transferred back to the original owner, or to another person. By contrast, a Will can be changed at any time before death without any costs of transfer, and will be effective to transfer any assets still in the name of the Will-maker at the date of their death; or

(b)    The owner realises that they have given away too many assets so that they do not have enough to live on for themselves in retirement – can they now rely on the goodwill of the recipient beneficiary to utilise their “early inheritance” for the good of their benefactor? Or have they already spent their early inheritance? In any event, the former owner may discover to their regret (and possibly embarrassment) that they are no longer financially independent.

Death benefit nominations for life and super

Nominating a beneficiary on a life insurance policy other than the deceased person’s estate so that on death the policy benefit is paid directly to the nominated beneficiary and by-passes the deceased person’s estate.

However, paying insurance death benefits to beneficiaries nominated in relation to a life insurance policy directly rather than via testamentary discretionary trusts under the policy owner’s Will, may result in the loss of significant and ongoing annual tax benefits in relation to the taxation of trust income – particularly if those beneficiaries have children of their own.

Nominating the payment of a superannuation death benefit directly to one or more persons who are eligible recipients for superannuation law purposes, rather than via the deceased member’s estate, so that on death the superannuation death benefit is paid directly to the nominated recipients and by-passes the deceased person’s estate.

Where the beneficiaries nominated in relation to a superannuation death benefit are not tax dependants (such as adult children who are working and no longer living at home), paying the death benefit to them directly rather than via testamentary discretionary trusts under the member’s Will may result in the loss of significant and ongoing annual tax benefits in relation to the taxation of trust income – particularly if those beneficiaries have children of their own.

Ironically, it is a client’s financial advisers and accountants who are much more likely to realise this than the probate lawyer engaged by the client’s surviving beneficiaries. Which is all the more reason why financial advisers and accountants are almost duty bound to take an active and ongoing interest in their client’s estate planning and (eventually) the administration of their deceased estate to ensure to that the estate plan is correctly implemented and the benefits fully realised for the client’s family.

By Brian Hor, Special Counsel – Estate Planning & Superannuation

You must be logged in to post or view comments.