Why it could be time to review your estate planning

Australia is experiencing one of the largest intergenerational wealth transfers in our history, with more than $3 trillion dollars expected to pass to beneficiaries in the next 10 to 20 years.1

In addition, whilst Australia made history in the 70s as one of the first developed countries to abolish death duties on deceased estates, death duties have continued to exist in Australia with death benefit taxes levied on superannuation benefits passing to certain beneficiaries2. As a result, with Australians now holding a considerable proportion of their wealth through superannuation, the importance of estate planning may be even more important.

Whilst a good estate planning lawyer will develop a robust plan to future-proof your estate plan as far as possible, with ongoing changes to both superannuation law and taxation legislation, it is potentially important to regularly review your Will and other documents to ensure they are still appropriate.

When you should review your estate plan

Generally speaking, if your circumstances change, you should review your estate planning documents (your Will, enduring power of attorney and death benefit nominations) to ensure they continue to remain in line with your wishes. For example, a beneficiary may die, or you may simply change your mind about a disposition or an appointment of an executor or attorney after finalising these documents.

We usually recommend that you review your estate planning documents every three to five years or in any instances where:

  • there is a significant change to your assets
  • there is a significant change to your family structure
  • there are changes to legislation such as succession, family law or taxation law
  • a nominated executor, guardian or significant beneficiary passes away
  • you get divorced or are about to marry or move in with a spouse, or
  • there are significant changes in your life such as children moving out of home, retirement or a transition to aged care.

If it has been some time since you implemented your estate plan, depending on the documentation that you have in place and where you live, it may be the opportune time to review your arrangements.

Recent changes to power of attorneys

In Victoria, changes came into effect in 2018 relating to power of attorney documents which appoint persons to make decisions for you if you are unable to make these decisions for yourself. The previous three documents which covered financial and property matters, medical decisions and personal/ lifestyle decisions have now been consolidated into the enduring power of attorney (covering financial and personal decisions) and an appointment of medical treatment decision maker (covering healthcare and medical decisions).

Similarly, in the ACT changes were made to the Power of Attorney Act 2006 (ACT) in late 2016 to introduce a fourth power relating to medical research matters.

Whilst power of attorney documentation executed under previous law will continue to remain valid, it is still recommended that you review existing documents to ensure appropriateness.

Testamentary trusts

For clients that have simple or basic Wills in place it may also be beneficial reviewing these documents to explore whether your beneficiaries can benefit from the inclusion of testamentary trusts.

A testamentary trust may be used in a number of circumstances. For adult beneficiaries such as adult children they may provide the following potential benefits:

  • allow a beneficiary to split and stream income and capital gains generated from their inheritance (as opposed to that income being taxed in their personal hands) amongst those parties who fall in the category of ‘potential beneficiary’ – which in most cases will be a spouse or children, and
  • achieve a greater level of asset protection over their inheritance which can assist in preventing their inheritance passing to a third party through relationship breakdown.

A testamentary trust can be particularly tax effective where that beneficiary has children or grandchildren who are minors i.e. under the age of 18, as they are able to have income taxed in the hands of the minor beneficiary, but at adult tax rates, allowing up to $18,200 tax- free income, per minor, per year.

A testamentary trust can also offer a suitable structure for minor beneficiaries or young beneficiaries where it may not yet be appropriate to give them full control over their inheritance. The terms of your Will can provide that their inheritance is automatically held in trust by your nominated person, with provision for their inheritance to be applied for the following expenses:

  • education expenses
  • reasonable maintenance and welfare
  • medical and dental treatment, and
  • for such other expenses which the trustee considers appropriate.

For clients that have existing testamentary trust Wills, it may also be appropriate to review those Wills in light of the following:

  • Changes to taxation law as a result of the Bamford3 case and subsequent streaming legislation introduced in 2011 both require specific powers under the terms of the trust in order to be able to get the benefit of being able to distribute particular types of income (such as dividends with franking credits and capital gains) to beneficiaries.
  • Where asset protection is a concern, it may be appropriate to review the control mechanisms of the testamentary trusts and the beneficiaries able to benefit from the trust. For example, it may be appropriate to limit those beneficiaries able to benefit from the trust to the bloodline by specifically excluding a spouse of a beneficiary from being able to receive capital.

Reviewing superannuation arrangements

Similarly, in light of the potential for death benefit taxes (which could be as high as 30 per cent plus the medicare levy) to apply on superannuation passing to particular beneficiaries and changes to superannuation law in 2017 with the introduction of the transfer balance cap, it is potentially crucial to review the following in order to ensure that benefits pass to your intended beneficiaries in the most tax effective manner:

  • the structure of your superannuation accounts, including pensions
  • the amounts currently held in pension phase
  • the potential death benefit tax liability of taxable and untaxed superannuation components passing to your estate, or to adult non-dependent beneficiaries, and
  • the structure and terms of any death benefit nominations.

Seeking specialist advice

As each individual is different, there is no one-size-fits-all strategy for estate planning. Each plan must be individually tailored to the objectives of the individual, their asset structure and the particular needs of the beneficiaries. This means when there are significant changes to any of these factors, the estate plan should be reviewed accordingly.

You can talk to a member of our Wealth Law team about putting an estate plan in place or reviewing your current arrangements, to ensure that those you intend to benefit, do benefit ― and that your estate passes in the most tax-effective and asset-protective manner.

Vik Sundar is a tax and private wealth lawyer and the Managing Director of Evans Dixon Law. Vik is also the co-author of two leading text books on testamentary trusts and advanced estate planning strategies (Lexis Nexis 2013 and 2016).4

  1Source: Australian Financial Review, December 2017: “Largest intergenerational wealth transfer to come”.

  2Source; SMSF Adviser, November 2015:  “Minimising death benefit taxes for your SMSF clients”

  3Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481

  4https://store.lexisnexis.com.au/product?9780409342994

This insight may contain general advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Evans Dixon Law Pty Limited (ABN 41 138 556 573) (Evans Dixon Law) provides legal and estate planning services. Evans Dixon Law is a related entity and member of the Evans Dixon group of companies.

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Vik Sundar

Managing Director, Evans Dixon Law

With extensive experience in tax, estate planning, SMSFs and private business, Vik was one of the founding members of Evans Dixon Law (formerly Dixon Advisory Law) and now manages the private wealth legal team for Evans Dixon, supervising a national team of specialist lawyers.

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