Support For Individuals, Couples, & Families
Why do I need a Power of Attorney?
The starting point is to have your loved one authorise you or someone they trust to act on their behalf through both a power of attorney for financial affairs and enduring guardianship.
An enduring power of attorney is a legal document that allows the “principal” to nominate one or more persons, referred to as “attorneys”, to act on their behalf. An enduring power of attorney gives the attorney the authority to manage legal and financial affairs, including buying and selling real estate, shares and other assets and day to day transactions such as operating bank accounts.
An enduring guardianship appoints a person to make decisions of a medical nature and decide where a person lives. Both enduring powers of attorney and enduring guardianships remain in force even when a person loses their mental capacity.
Consider finding a care manager or social worker to do a needs assessment and help coordinate appropriate services, such as assistance with shopping, transportation, medication and daily living such as eating and dressing.
Try to get a contact list of neighbours and friends to develop a support system for your loved one. Consider using technology such as FaceTime, Zoom, as a contact method.
Once a Power of Attorney and Enduring Guardianship is in place, the process of looking after someone can become a lot smoother.
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Why do I need a Power of Attorney?
1 Testamentary capacity 2
2 Additional questions to ask the testator when taking instructions 3
3 A valid will 3
4 Informal wills 4
5 Revocation, marriage and divorce
6 Marriage 4
7 Divorce or annulment 5
8 Revival of a revoked will 5
9 Executors and trustees 5
10 Solicitors as executors 5
11 Multi-jurisdictional estates 7
12 Burial and cremation 7
13 Guardianship 7
14 Dispositions of property 8
17 Assets subject to debt 12
18 Tax 13
19 Superannuation Death Benefits 14
21 Finalisation 15
A will is a document containing a person’s instructions as to how their property and assets are to be distributed after their death. Failure to make a will results in the distribution of the assets of the deceased being determined by statute.
The law relating to wills in New South Wales is covered by the Succession Act 2006.
We all draft many wills each year. The majority of them are straightforward mutual wills by spouses leaving their estates to each other and then to their children.
However, the issues arising from including or excluding children from former relationships in clients wills are now commonplace. This demands an understanding of the options and pitfalls inherent in some apparent solutions as well as the provisions of the Succession Act 2006 relating to family provision claims. These are discussed below.
The precedent wills in the guide are drawn for use in the case of:
- Single person
- New Will for Single Person
- New Will for Spouses (includes de facto)
- Husband Will for Spouses with Wife as Trustee
- Wife Will for Spouses with Husband as Trustee
- Blended families
- New Will for Blended Families
- Husband Will for Blended Families with Wife as Trustee
- Wife Will for Blended Families with Husband as Trustee
- Testamentary trust
- Husband Will Creating Multiple Testamentary Discretionary Trusts
- Wife Will Creating Multiple Testamentary Discretionary Trusts.
The precedents also include a library of provisions covering less frequently used precedents including for example unusual execution clauses and the creation of life estates.
No form of codicil is included in the precedents as it is just as easy to redo the will avoiding any possibility of mislaying the second document or creating unforeseen inconsistencies through the use of different language in the two documents.
Because legislation such as the Trustee Act 1925 provides executors with wide powers of investment those powers have been omitted from the wills precedents as entirely unnecessary.
With specific bequests take care to identify what is owned by testators such as interests in companies, trusts and partnerships.
Any expenses of looking after personalty the subject of specific bequests,, such as warehousing and delivery costs are for the donee, not the estate. To avoid potential disagreement later and depending on the circumstances this should be clarified in the will.
In describing personal effects remember that it may be necessary to specifically include furniture and furnishings in sheds or detached flats and to include tools, plant and machinery such as ride-on mowers.
A release of debt is a legacy to the debtor. If releasing debt by will release the debtor and his estate, otherwise if the debtor dies before the testator the release fails and the debtor’s estate is liable for the debt.
It is important to be aware that if the will provides for a pecuniary legacy for the support of a beneficiary, the estate will be required to buy an annuity or set aside a fund sufficient for the income it earns to meet the liability. This can involve substantial capital cost to the estate as the court imposed terms are very conservative.
Although not often an issue the first question the lawyer should consider is whether the testator has testamentary capacity.
The usual authority quoted concerning testamentary capacity is Banks v Goodfellow (1870) LR 5 QB 549 at 565. There Cockburn CJ said:
“It is essential to the exercise of such a power that a testator shall understand the nature of the act, and its effects; shall understand the extent of property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.”
Testamentary capacity is not a matter of the opinion of the lawyer. If there are doubts then ask questions and take notes of the answers to them. It is for the court to decide capacity assisted by these notes.
It would be prudent, for example, for the lawyer to investigate capacity further if:
- The testator appears to be a minor: request production of a driver’s licence or marriage certificate;
- There is a clear and readily apparent indication that the testator may not have capacity – for example, if the testator gives one set of instructions, followed shortly by contrary instructions;
- If the testator has suffered some trauma (known to the lawyer) that could later be alleged to affect capacity.
In the last two instances, rather than proceed with preparing a draft will, the lawyer might request the testator’s consent to obtaining a medical practitioner’s report as to capacity preferably obtaining this by way of affidavit or statutory declaration.
It can be explained to the testator that the request for the medical opinion is to ensure that the testator’s will and intentions are not later challenged on the grounds of incapacity.
Take note that the medical practitioner will view any request for an opinion from a medical viewpoint rather than a legal viewpoint unless the reason for which the opinion is sought is clarified.
If a client does not have capacity, but a will is required, the lawyer may wish to consider a will authorised by the court: see ss 18-26 Succession Act 2006.
An excellent publication on capacity, including matters to be raised with the will maker’s medical practitioner, is “When a client’s capacity is in doubt: A Practical Guide for Solicitors”, a copyright production of the Law Society of New South Wales (2009).
Testamentary capacity of a minor
Minimum age for making a will is 18, as prescribed by Succession Act 2006 – Sect 5 Minimum age for making a will. This is the age under which someone is deemed a minor and therefore lacks legal personality and capacity.
However, a minor may make a will in contemplation of marriage – s 5(2)(a) Succession Act 2006 and the Court may authorise a minor to make a will Succession Act 2006 – Sect 16 Court may authorise minor to make, alter or revoke a will.
Have any orders or binding agreements affecting assets been made pursuant to the Family Law Act 1975 (spouses or de facto partners) that are still subsisting and/or will affect asset distribution?
Has the will maker made a will in another jurisdiction regarding assets in that jurisdiction? If so, by this will, does the will maker intend to revoke all wills in all jurisdictions?
A will, apart from one made in special circumstances such as by defence personnel on active duty, is only valid when:
- It is in writing, and
- Signed by the testator, whether or not at the foot of the instrument, or
- Signed by any other person in the testator’s presence and under his directions, and
- It appears from the will that the testator intended to give effect to the will by signing it, and
- The signature must be made or acknowledged by the testator in the presence of two or more witnesses present at the same time who must attest and sign the will in the presence of the testator.
It is not necessary for the will to have an attestation clause.
Execution of a will is governed by Succession Act 2006 – Sect 6 How should a will be executed?
The formal requirements can be dispensed with by the court Succession Act 2006 – Sect 8 When may the Court dispense with the requirements for execution, alteration or revocation of wills?
Persons who cannot see cannot witness wills Succession Act 2006 – Sect 9 Persons who cannot act as witnesses to wills
Beneficiaries witnessing wills may avoid gifts see Succession Act 2006 – Sect 10 Can an interested witness benefit from a disposition under a will?
Alteration of a will Succession Act 2006 – Sect 14 How a will may be altered
Revival of revoked will Succession Act 2006 – Sect 15 How a revoked will may be revived
Will by person without testamentary capacity Succession Act 2006 – Sect 18 Court may authorise a will to be made, altered or revoked for a person without testamentary capacity.
A will can be rectified by the Court Succession Act 2006 – Sect 27 Court may rectify a will.
At the time of taking instructions, you should consider the need for an informal will if the circumstances suggest that the client may lose testamentary capacity or die before a formal will can be executed.
An informal will pursuant to section 8 of the Succession Act 2006 can be created by having your client sign each page of the instructions. It is also a good idea for the practitioner to witness the client’s signature by signing as well.
The first provision in a will is the usual revocation of previous testamentary acts.
Marriage revokes a will unless made in contemplation of marriage. Those who make wills while in a de facto relationship may not intend to marry. However, the precedent will provides that it is made in contemplation of marriage to avoid an unintentional revocation if they subsequently marry. It also provides that the will is not void if the marriage does not take place.
However, every will maker will have his or her own requirements, frequently including a provision that a substitute beneficiary is to inherit if the contemplated marriage does not take place within a certain period of time. Make sure that in drafting this provision terms which are vague or uncertain are avoided.
Unless a contrary intention is expressed in the will the result of divorce is that gifts to a former spouse are revoked and the subject matter passes as if the spouse predeceased the testator and any appointment as executor is taken to have been omitted from the will.
Such a will may be revived by re-execution or by executing a document or codicil showing an intention to revive the earlier one in full or in part. It is taken to have been executed on the day it is revived.
The appointment of the executor is usually straightforward and they are usually the major beneficiaries. A minor can be appointed as an executor but is not entitled to a grant if still a minor at the time of death of the testator. Leave will be reserved for the minor to prove on attaining their majority.
The court may grant administration with the will annexed to the guardian of the minor or such other person as the court thinks fit.
There is no limit to the number of executors that can be appointed but no company can be an executor other than a trustee company.
Where beneficiaries do not take their gifts straight away, for example because they are under 18 years old, or have another legal disability such as mental incapacity, the executor has continuing obligations until those disabilities are overcome and must act as a trustee of the estate. For that reason, the precedent wills refer to executors and trustees.
An executor cannot be appointed on the basis that he is the holder for the time being of some position, for instance the president of the Law Society.
A clause in a will that purports to require an executor to appoint a particular firm of solicitors to act on behalf of the estate is not binding.
Foster v Elsley (1881-2) 19 Ch D 518
Nowakowski v Gajdobraski Vic Sup Crt 12/4/96
An executor is not obliged to accept office.
Executors are entitled to apply to the court for commission.
In the precedent wills gifts to executors are expressed not to be dependent on them accepting office.
A trustee cannot buy trust property unless all beneficiaries agree or there is an express power in the will or the consent of the court is obtained.
It is common for solicitors to be named as executors in their clients’ wills. An executor is entitled to charge executor’s commission in the following cases:
- If there is a clause in the will authorising executor’s commission;
- If a court authorises executor’s commission;
- If all beneficiaries, being legally competent, authorise executor’s commission.
Executor’s commission is regarded as a gift and the solicitor should not witness the will.
If the will does not authorise an executor or trustee to charge for work performed in carrying out the office, that person will be unable to claim fees because of the equitable duty of fiduciaries to act gratuitously. Therefore if the will appoints a lawyer, or an associate of that lawyer, as executor that person can only charge the usual professional fees if a charging clause is included in the will.
The client must be specifically and fully informed in writing about any entitlement of the practitioner or an associate to claim commission, of the inclusion in the will of any provision entitling them to charge legal costs, and the fact that the client could appoint an executor who might not claim for commission.
Before including a commission or charging clause, the solicitor needs to be mindful of:
- the provisions in the New South Wales Professional Conduct and Practice Rules 2013, which incorporate the Australian Solicitors’ Conduct Rules June 2011;
- the necessity to fully inform the client in writing before he/she signs the will, and obtain the client’s informed consent;
- the attitude of the courts, as succinctly expressed in Re McClung (dec’d)  VSC 209 – namely, that this is ‘not a position which the solicitor should seek’ and ‘to request inclusion of a charging clause so wide as to enable the solicitor to charge for all executorial functions is not reasonable unless the solicitor ensures that the will provides that such charges may be made in lieu of entitlement to commission and the full import of the clause is explained to the client’.
If the solicitor is to receive further benefits beyond commission and costs under the will then the testator must receive independent advice on those gifts.
Failure to comply with the strict rules reprinted below may amount to professional misconduct or unsatisfactory professional conduct.
10.1 Rule 12 Professional Conduct and Practice Rules
Rule 12 states:
12.1 A solicitor must not act for a client where there is a conflict between the duty to serve the best interests of a client and the interests of the solicitor or an associate of the solicitor, except as permitted by this Rule.
12.2 A solicitor must not exercise any undue influence intended to dispose the client to benefit the solicitor in excess of the solicitor’s fair remuneration for legal services provided to the client.
12.4 A solicitor will not have breached this Rule merely by:
12.4.1 drawing a Will appointing the solicitor or an associate of the solicitor as executor, provided the solicitor informs the client in writing before the client signs the Will:
(i) of any entitlement of the solicitor, or the solicitor’s law practice or associate, to claim executor’s commission;
(ii) of the inclusion in the Will of any provision entitling the solicitor, or the solicitor’s law practice or associate, to charge legal costs in relation to the administration of the estate; and
(iii) if the solicitor or the solicitor’s law practice or associate has an entitlement to claim commission, that the client could appoint as executor a person who might make no claim for executor’s commission.
12.4.2 drawing a Will or other instrument under which the solicitor (or the solicitor’s law practice or associate) will or may receive a substantial benefit other than any proper entitlement to executor’s commission and proper fees, provided the person instructing the solicitor is either:
(i) a member of the solicitor’s immediate family; or
(ii) a solicitor, or a member of the immediate family of a solicitor, who is a partner, employer, or employee, of the solicitor.
12.4.3 receiving a financial benefit from a third party in relation to any dealing where the solicitor represents a client, or from another service provider to whom a client has been referred by the solicitor, provided that the solicitor advises the client:
(i) that a commission or benefit is or may be payable to the solicitor in respect of the dealing or referral and the nature of that commission or benefit;
(ii) that the client may refuse any referral, and the client has given informed consent to the commission or benefit received or which may be received.
12.4.4 acting for a client in any dealing in which a financial benefit may be payable to a third party for referring the client, provided that the solicitor has first disclosed the payment or financial benefit to the client.
Many immigrants to Australia may have property in other jurisdictions. Appointing executors over the whole of the estate wherever situate may be the most convenient. Grants of probate can be resealed if the foreign property is held in another of Her Majesty’s dominions or can be recognised in the foreign jurisdiction where the property is held.
Where it is possible that the foreign estate may claim inheritance duties over the Australian property – even though this is unenforceable under private international law – appointing separate executors for the foreign assets may avoid a conflict with the state from which the grant is necessary.
Following the appointment of executors the client often provides instructions as to burial or cremation such as:
- I wish to be cremated and have my ashes deposited at or scattered over …
- I wish to be buried at …
- I declare my body to be available for anatomical therapeutic medical or scientific purposes.
- I wish my body to be used for medical education or research by the University of Sydney.
Whether or not to include a provision appointing guardians raises difficulties. Most often the decision is made not to appoint guardians, as the children will go to the family best able to care for them which is unknown at the time of making the will. In the event that an intractable dispute arises then the Family Court makes the final decision in the best interests of the children.
If it is desired by some means to prevent a former spouse from having the children remember that a testamentary guardian acts jointly with a surviving parent. Guardianship of Infants Act 1916 s13.
Under family law legislation each parent has the full responsibility for the long-term care and welfare of their children.
If it is decided to appoint guardians, then also authorise the trustee to provide sufficient funds for the children’s care, upkeep, education and advancement in life.
Disposition of property is the area in which true complexity can arise. The precedent wills have been drafted to keep the interpretation of the will as straightforward as possible. So, for instance, rather than grapple with the statutory rules of substitution and accrual the wills spell it out. If for instance the beneficiary of a bequest does not survive the testator then the bequest is said to fall into residue. If a member of a class predeceases the testator then the survivors are said to inherit.
The statutory provision is set out below for those interested.
Succession Act 2006 – Sect 41 – Dispositions not to fail because issue have died before testator
The statutory provisions apply to children or issue. They protect a gift to children or issue of the testator from lapse if they die before the testator, themselves leaving issue. A gift to issue not determinable on or before death does not lapse but takes effect as if the beneficiary dies immediately after the testator.
Further if no accrual provision is used in a gift to a class equally or in equal shares then if a member of the class dies before the testator Succession Act 2006 – Sect 31 Effect of failure of a disposition provides for it to go to residue. If there is no residual gift could result in a partial intestacy.
Where the order of death is unknown the presumption is that the eldest died first: Conveyancing Act 1919 – s 35 Presumption of survivorship. The court may of course conclude otherwise.
The will precedents deal generally with these problems by providing that all beneficiaries must survive the testator by 30 days and that a gift does not vest if the beneficiary does not achieve an age specified in the will. For the legislative positionSuccession Act 2006 – Sect 35 Beneficiaries must survive testator by 30 days and Succession Act 2006 – Sect 41 Dispositions not to fail because issue have died before testator.
A problem arises if spouses die together having both made the same bequest. An identical bequest intended to vest under the will of the survivor might unintentionally vest twice if neither of them survive to take the whole of their spousal estate thereby creating an unintended double benefit. Hence the wording of the bequest clause in the precedent.
It is to be remembered that ‘children’ do not include stepchildren.
Delegation of testamentary power under common law was not effective as a testator could not get others to decide how to dispose of assets. However, a testator could make a gift to charities to be selected by the executors. In so far as it relates to a power or trust this rule against delegation has been repealed by s 44 of the Succession Act 2006 effective from 1 March 2008. If it is intended by will to create a power of appointment or a testamentary discretionary trust care needs to be taken to consider the stamp duty and capital gains tax implications as the normal rules do not apply and any transfer to a beneficiary may attract both a stamp duty and capital gains tax liability.
Take care to ensure that gifts to pensioners do not adversely affect their social security entitlements. The anti avoidance provisions in the social security legislation make the use of trusts and companies ineffective for protecting those entitlements. However, with the present changes to the legislation relating to superannuation, an opportunity arises to make gifts to a superannuation fund with members enjoying more lenient social security entitlement tests.
Lists are only testamentary if they are incorporated by words in the will and are identifiable. If the testator wishes to use a list of personal items then they may give the personal items to a family member expressing a wish they distribute them according to the list.
14.1 Testamentary Trusts
A family trust is generally established by a family member for the benefit of members of the family group. They can protect family assets from the liabilities of one or more of the family members in the event of them becoming bankrupt or insolvent. They provide a mechanism to pass family assets to future generations and may avoid issues such as challenges to the will of a deceased senior family member. They also provide a means of accessing favourable taxation treatment by ensuring all family members use their income tax free thresholds. In relation to losses and franking credits a family trust election can secure tax advantages otherwise unavailable provided that the trust passes the family control test and makes distributions of trust income only to beneficiaries of the trust who are members of the family.
The precedent wills, creating testamentary discretionary trusts, are self-explanatory. Whilst of little interest to most with modest estates they can provide excellent tax benefits and enable discretionary distribution of capital and income to problem beneficiaries on recovery from drug addiction or reform of disqualifying behaviour, discharge from bankruptcy or other qualifying events.
The tax benefit of testamentary discretionary trusts as against the inter vivos trust is that distribution of income to minors is taxed in the hands of minors at normal marginal rates. They therefore get the benefit of the tax-free threshold – presently $18,200 – and the low rates of tax enabling payment of their school and other expenses either tax free or with little tax. An elderly testator with 6 young grandchildren can provide significant tax benefits for their parents.
The blended family
With blended families two common issues arise:
- How to leave the estate to the testator’s partner and prevent children or step children from making a claim in the testator’s estate.
- How to leave the estate to the testator’s partner, whilst ensuring the testator’s children are benefited on the death of that partner.
Preventing children from making a claim under the provisions of the Succession Act 2006
Many clients wrongly believe that the problem is readily resolved by leaving the children a small or token amount. This is not the case and if the provision made for them is inadequate then the court will order the appropriate adjustment.
It was once thought that contracts to leave property by will removed that property from the operation of the Act. However, that is not so and a testator’s family maintenance order can apply to such property, although the person having the benefit of such a contract may well be entitled to bring an action for damages or other remedies which will need to be weighed by the court. Such an arrangement is often viewed as objectionable in any event due to the inflexibility it creates.
In most cases the assets of the relationship are not great, and the testators wish to provide for each other first and, after the death of both of them, the children. There is often also such hostility in the family that the testators do not want to see any part of their estate go to one or more of their children.
However problems arise whether or not the blended family is harmonious. If the step-parent inherits the whole estate from the children’s parent and the children don’t seek any provision from their parent’s estate, they may well receive nothing from the step-parent’s estate, even if they are entitled to claim in the estate of the step-parent, as they are in several Australian jurisdictions, not NSW, if the step-parent changes their will or deals with the property received from the estate in such a way that it is unavailable in their estate when they die. This inevitably leads to claims by children in their parent’s estate if the whole estate is left to the step-parent.
Before making any endeavour to solve these problems, consideration should be given to the likely outcome of a family provision claim.
The general principles for making provision for a surviving spouse of a long marriage with a modest estate are found in King v White 1992 2 VR 417. Those considerations are the length and quality of the relationship, the character and conduct of the parties and both the size of the estate and the size of competing claims. The duty to the surviving spouse is to provide a secure home, sufficient income for a comfortable lifestyle without anxiety and to which they are accustomed and an allowance for unseen circumstances. The following is a guide to the range of outcomes for a number of classes of claimants under the Act:
Are regarded as natural children.
Adult sons and single daughters: 10% – 20%
With some special need.
Infant children, including posthumous children: 20% – 30%
Married daughters: 10% – 20%
Even though supported by husbands are not disentitled but must have some special need. Married daughters are treated in a similar fashion to adult sons.
Ex-nuptial children: Adults 10% – 20% and Infants: 20% – 30%
Proof of identity depends largely upon admissions by the deceased. In the interests of certainty the court is more likely than not to order a paternity test. If paternity is established ex-nuptial children are in the same position as children of the marriage or de facto relationship according to their age and circumstances.
Stepchildren: 5% – 15%
Are eligible if wholly or partly dependent upon the deceased, which must be more than a minimal dependence or a member of the deceased’s household and there are factors warranting an order for provision. Generally the child’s age when the dependence was assumed is a factor.
Widows and widowers who have not remarried: 80% – 100%
Have the primary moral claim on the testator’s bounty and the order will invariably include the house and the bulk of the remainder in the absence of significant competing claims by children.
Widows who have remarried: 40% +
Are not disentitled. Any improvement in their circumstances by reason of the remarriage is taken into account on quantum.
Separated spouses: 15% – 20%
Separation has a negative effect on the testator’s moral obligation to provide. If the separation is of long standing in that the parties have made new independent lives there may be no remaining moral obligation. If there are infant children that is a factor that will increase the quantum of any order for provision.
Defacto Widows or Widowers: 25% – 100%
To be eligible must have been living with the deceased at the date of death. May be treated as a married widow or widower in the absence of competing claims by children
Divorced wives: Depends on the facts
There must be factors warranting an order for provision, including the length of a marriage and that the plaintiff is the mother of the deceased’s children. If the parties have not completed a family law settlement that is a significant factor warranting an order for provision. Divorced wives are in a very different position to separated spouses.
Second wives: 15% – 50%
The existence of a first wife and children will affect the quantum of any order for provision.
Second wives: 15% – 25%
Where there are children of the first marriage with competing needs.
Persons with an intellectual disability
Have a significant moral claim on the testator. The quantum of the order will depend upon need, which may or may not be great. The usual order will be the creation of a discretionary trust fund to provide for items such as outings, supervision, health care or additional comforts. Where there is no competing need, particularly in a small estate the order may be for the whole of the estate.
As can be seen, the surviving spouse is well cared for and perhaps the answer is to simply rely upon the good sense of the law.
However testators often wish to ensure that no claim is made by the children.
There are number of possible arrangements that can be put in place, dependent on the testator’s age and wealth.
If the assets of the testators allow it then the surest way of dealing with the issue is to leave the children a sum at the lower end of the scale thereby removing their incentive to claim. In counterpoint the usual order for the estate to pay the claimant’s costs removes the usual cost disincentive to making a claim.
Superannuation does not generally form part of the estate. Be aware that binding nominations might also fall outside claims under the Succession Act 2006. See also Pope and Ors v Christie  NSWSC 118. Life insurance with named beneficiaries is not an estate asset and Life policies are protected from creditors under the Commonwealth Life Insurance Act 1995 to preserve benefits for the testator’s family.
Notwithstanding the above, it is possible in some instances that the proceeds of superannuation and/or life insurance will fall into the estate, and testators need to be questioned as to any nominations made and whether they wish for a direction to the trustees of the fund to be included in their will.
There can be a marked difference in the taxation treatment of these benefits depending upon whether proceeds are paid to a nominee, dependant(s) or to the estate; and the testator would be well advised to consult his/her Taxation Adviser before finalising the will (and before making any binding nominations).
The interests of beneficiaries under a discretionary trust are not an estate asset.
Generally, property held by the testator as a joint proprietor is not an estate asset, and passes to the joint holder under the survivorship rule.
The following is a brief appreciation of the notional estate provisions of the Act. See the Step by Step Guide to Estate Disputes under the Succession Act 2006 for further discussion.
The Act makes methods of avoidance ineffective when adopted within certain time limits. A prescribed transaction is one within 3 years of death with the intention of limiting the provision for eligible persons or one which took effect within 1 year before death and done at a time when the testator had a greater obligation to provide for the applicant than the obligation to enter into the transaction.
The creation of a joint tenancy can after either 1 or 3 years reduce the size of the estate. When the court designates property as notional estate the rights that a person has in affected property are extinguished. A failure to extinguish a joint tenancy could be a prescribed transaction. See Wade v Harding 1987 11 NSWLR 551. And as to superannuation see Pope and Ors v Christie  NSWSC 118.
Suffice it to say there is no easy way of solving the problem. The Act is not draconian and does not produce absurd results and perhaps the answer is simply to accept it. The Family Court can approve a release of rights to family provision under s 95of the Succession Act 2006. Also Binding Financial Agreements under the Family Law Act 1975 usually contain covenants to apply to the Supreme Court for approval of any release contained in the agreement.
14.3 Leaving the estate to the testator’s partner but protecting the interest of the testator’s children after their partner has died.
This issue obviously closely related to the first is to devise a means of satisfying the testator’s wish to leave their estate to their partners but also to ensure that their partners do not change their Will after their death thereby disinheriting their children. Clients commonly express the fear of the new partner taking the children’s inheritance.
The usual devises considered are the contract not to change wills, the right of occupancy, or the life estate. The trouble is that any long-term arrangement creates an inflexibility that is unsuited to all the possible changes that might occur.
For instance, a couple with children from other relationships make wills at the age of 50. One dies shortly thereafter. Five years later at the age of 55 the survivor meets and enters into a new relationship which continues until they make new wills at age 80, 25 years later. Naturally the interests of children of a relationship 25 years ago will be subordinate to those of the surviving spouse.
Events such as recession, war, serious illness or injury can substantially change the financial position of the survivor who if locked into an inflexible arrangement may be prevented from making appropriate decisions.
Long-term arrangements can also create disharmony between the aging life tenant, who does not like interference in their affairs, whilst remainder men, seeing themselves as the true owners, demand repairs or a say in who is in residence with the life tenant.
Additionally, the life tenant may well, depending upon the circumstances, bring a testators family maintenance claim on the basis that a life interest does not represent an adequate provision for him or her.
There is no easy answer. Long-term arrangements are better avoided. If the estate is sufficiently large, then there is scope for the children to benefit. If not, then clearly the old should be looked after before the young. In the end there has to be trust in life and in the partner in whom far greater trust than in financial assets has been placed.
The Locke King legislation: Conveyancing Act 1919 s 145 Charges on property of deceased to be paid primarily out of the property charged provides that a gift of property real or personal passes the property subject to the charge to which it is liable unless a contrary intention is in the will.
A devise of real estate could be made subject to the executors registering a mortgage in favour of the other beneficiaries.
An optionee is entitled to have the property free of debt. If the optionee is to take the debt the will must say so.
Section 145 does not apply when a joint owner of mortgaged property dies. The estate is liable and is entitled to contribution from the survivor. If it is intended that the estate pay the debt then there should be a no claim for contribution clause included in the will.
There can be various taxation implications arising under a will. If you do not practise in this area, the best advice you can give the testator is to seek appropriate advice from their accountant or taxation adviser before the will is finalised, and ensure that the testator does so.
16.1 Land tax
If a property was the principal place of residence of the deceased it will be exempt from land tax:
- for 24 months if they died after 1 January 2010 and for 12 months if they died before 1 January 2010; OR
- until the land is transferred to any person (other than the deceased person’s personal representative or a beneficiary of the deceased person’s estate),
whichever occurs first.
If the principal place of residence continues to be used as a principal place of residence by a person given a right to occupy it by the will or a person who lived with the deceased and continues to live in the residence, then land tax is not payable.
16.2 Duty on personalty
Stamp duty and transfer fees do not apply to the transfer of registration of a vehicle forming part of a deceased estate if the vehicle is transferred into the name of one of the following:
- A beneficiary or executor nominated in a will.
- The Administrator of the estate.
- The surviving joint registered operator.
- The next of kin.
- A different proven beneficiary in a subsequent transfer. If the registration is transferred into the name of a person listed above, and then subsequently transferred to a different proven beneficiary, stamp duty and transfer fees are not payable on both transfers.
Practitioners and trustee companies must lodge either an application to register a motor vehicle or a notice of change of beneficial ownership
16.3 Capital gains tax
A change of ownership due to death is not normally a capital gains tax event. The move of the asset to the beneficiary through the personal representative is not a disposal. The gain or loss is taxable when next disposed of. The inheritance and postponement of tax can take place several times.
The exception is a gift to an exempt entity. Exempt entities are charities that are tax-exempt, non-residents and complying superannuation funds. As these entities do not pay tax the capital gains tax crystallises and is payable by the estate on transfer to the exempt entity.
This means that if it is not intended that the estate pay the capital gains tax then the gift in the will must say that tax is payable by the exempt entity.
Charities that are part of the Cultural Gifts Program including public museums, libraries, art galleries and the Australiana Fund, whilst not taxable are not exempt entities for these purposes and no capital gains tax issues arise in relation to gifts to them.
Assets purchased before 20 September 1985 are subject to capital gains tax in the hands of the beneficiaries from the date of death onwards. Assets purchased after 20 September 1985 are subject to capital gains tax in the hands of beneficiaries from the date of the cost base forwards.
The main residence does not attract capital gains tax until 2 years after the date of death assuming a beneficiary or purchaser does not continue the main residence exemption.
Life interests and rights to occupy are ownership interests that continue the main residence exemption.
So far as the capital gains tax result of survivorship is concerned, joint tenants are treated as tenants in common with an equal interest in the asset. The survivor is deemed to have acquired the half share of the deceased at the date of death. The severance itself has no capital gains tax consequence. When the survivor sells then if the half share of the deceased was acquired before 20 September 1985 then capital gains tax accrues from the date of death onwards. If acquired after 20 September 1985 then capital gains tax accrues from the date of the cost base forwards.
If a property passes to a beneficiary by agreement of all beneficiaries then any capital gains tax liability is effectively rolled over. However, if a beneficiary is given an option in the will to acquire a property then capital gains tax applies to the sale. The testamentary option works to give the property to the beneficiary on its exercise free of debt but with the price coming into the estate for distribution and subject to capital gains tax.
It is not wise to leave specific assets to high-income individuals who on sale will pay high tax and it is probably prudent to provide in the will from where capital gains tax is to be paid.
On the death of the member of a superannuation fund, benefits can only be paid to the estate of the member or a dependent of the member, as defined by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS): includes the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship. However there are adverse tax consequences in paying the death benefit to children over the age of 18.
Whilst a SIS dependant includes all of your children (irrespective of their age), a tax dependant is limited to your spouse and children under 18 years at the time of your death and anyone who was financially dependent on you at the date of your death.
The taxation of superannuation death benefits is anomalous because, if you withdrew all your superannuation benefits from the SMSF (self managed superannuation fund) before you die and you are over the age of 60, then no tax would be payable. However, if the benefits are left in the SMSF at your death and they are distributed to a non-tax dependant such as an adult child, then the taxable portion of the benefits (all of the concessional contributions and earnings) will be subject to 16.5% tax in the adult child’s hands.
Some people who are aware that they have a terminal illness may choose to withdraw their superannuation before their death to prevent this tax being incurred. Withdrawing amounts from superannuation has its own risks since, once the amounts have been withdrawn, you may have difficulties because of your age and the contribution limits in putting funds back into superannuation.
So where both spouses are still living, usually it is best to give the surviving spouse discretion as to where to pay the superannuation death benefit. They can leave it in the SMSF or usually pay it to themselves tax free. Other assets can be given to other beneficiaries such as adult children to gain a better tax outcome. This does not usually work however where there are children from another relationship.
Leaving superannuation death benefits to your estate requires care. If the only beneficiaries of a deceased estate who can benefit from a superannuation death benefit are people who were or are tax dependants of the deceased, the executor of the estate is treated as receiving the superannuation death benefit as a tax dependant would have received it – that is, tax free. However, if one or more of the beneficiaries of a deceased estate who can benefit from a superannuation death benefit are people who were not or are not tax dependants of the deceased, the executor is not treated as receiving the superannuation death benefit as a death benefit dependant would have received it and is liable to 16.5% tax on the taxable portion of the benefits (all of the concessional contributions and earnings).
In such cases, if a deceased wants the superannuation to pass into the estate, a ‘superannuation proceeds trust’ is required to ensure only tax dependants can benefit from the superannuation death benefits so they are not subject to tax.
Two cases with dire consequences for want of a binding nomination
A recent Western Australian case, Ioppolo & Hesford v Conti  WASC 389, highlights the issues involved in estate planning where there are significant superannuation assets. Mrs Conti died with a significant balance in her self managed superannuation fund account. Her husband was the co-trustee and the other member. Prior to her death Mrs Conti had previously signed several non-binding and binding nominations in favour of her husband; however, these had lapsed. In her will, Mrs Conti directed that her superannuation be paid to her children and that none of it should be paid to her husband. Mr Conti, as the sole trustee of the self managed superannuation fund, resolved to pay her entire benefit to himself. Mrs Conti’s children challenged this decision in the Supreme Court. The court held that the trustee of the self managed superannuation fund could pay the death benefit to Mr Conti, and the children failed in their application.
Another example of trustees not acting as desired by the deceased occurred when a trustee opted to pay the estate rather than the children of the deceased. If the trustee had enquired it would quickly have been established that the estate was insolvent. The result was that the proceeds of the superannuation went to a creditor bank and the children received nothing.
As a matter of interest it is normal practice for trustees not to pay the proceeds of superannuation to an insolvent estate. The trustee in fact has a duty to act in the best interests of the beneficiaries which is clearly not the case of payment to an insolvent estate. If you examine the wording of Division 6.2 of the Superannuation Industry (Supervision) Regulations 1994you will find a duty to enquire. Trustees should not pay benefits to an insolvent estate. A central attribute of superannuation trusts is the inability of creditors to access members’ accounts.
Testators should be encouraged to review their will regularly. Whilst this may not be of great significance in the case of small estates or when the testator’s estate is to pass to their spouse then issue, it may be relevant in other situations. The events which may lead to a change of will include a change in asset holdings whether by disposition, acquisition or inheritance, a change by way of marriage or divorce or the entering of a de facto relationship or a change in tax or superannuation laws. Superannuation arrangements also need review particularly as nominations require renewal.