When a Will is not enough — dealing with non-estate assets

A discretionary trust, more commonly known as a ‘Family Trust’ is a common investment vehicle used by families and family business owners around Australia to hold assets or to run their family business.

Despite the widespread use of Family Trusts, a common misconception is that assets of a Family Trust belong to the person who created or controls the trust. This is incorrect, and in the vast majority of cases, a Will cannot deal with or distribute the assets of a Family Trust or any business it may run.

A Family Trust, through its trustee, is like a company — an entity in its own right. Consequently, they do not expire when the owner or controller dies. Rather they continue to exist and operate until they rest.

When you hear the statement “estate planning is more than a Will” that is because a Will is unable to deal with certain assets. A Will can only distribute assets personally owned either solely or as tenants in common by the Willmaker. Assets that are owned jointly by your Family Trust, superannuation fund or company cannot be dealt with by your Will. Separate ancillary documents may be required to deal with these assets and entities. Set out below are examples of documents that may need to be executed in addition to your Will to deal with these entities and assets properly and adequately.

Family Trusts

A Will can deal with the following aspects of a Family Trust:

• a Willmaker can give the shares owned in a company acting as trustee of a trust to named persons in their Will. The trustee manages and administers the trust assets pursuant to the terms of the trust deed.
• The appointor — if the trust deed provides the authority to nominate a successor via a Will, then the current appointor can nominate the next person to control the trust.
• The guardian/protector/supervisor — the current guardian of a trust and the trust deed provides the authority to nominate a successor via a Will.

A Will cannot distribute the assets of the Family Trust, or instruct the trustee of the Family Trust on how to distribute the assets. If it is the person’s testamentary intention that on their death the assets
of the Family Trust are to be distributed, then there are other documents that need to be prepared to achieve this outcome, but it cannot be solely achieved by a Will.

A decision may be made to not wind up a trust but to guide the new trustee. In this situation, a ‘Letter of Wishes’ can be left for the trustee of the Family Trust setting out how you would like the Trust to be managed following death. It is important to understand that this letter is not binding, it is only a mere wish and there is no legal obligation on the trustee to follow.

It is also important to note that you cannot gift a family business that is operated by a trustee to an individual, such as a child. Only the control and management of the Family Trust can be passed to the individual, not the ownership itself.

Company

Like a Family Trust, the assets owned by a company are not your assets, even if you are the sole shareholder. To gift the assets owned by a company, the shares in the company need to be gifted to the beneficiaries nominated in your Will.

Difficulties arise when a company owns a number of assets, and the assets are to be gifted to different individuals. In this circumstance, we recommend you meet with one of our lawyers to discuss your options. There are many factors which need to be considered in these circumstances including taxation.

When leaving a company to multiple beneficiaries, you may wish to implement a shareholders’ agreement. This agreement can set the rules of engagement between the shareholders and can also dictate who can own shares in the company, who can be appointed directors (eg. blood relatives only) and what should happen if someone wants to sell their shares. A Will can make the gift of shares in the company conditional upon each beneficiary executing the shareholders agreement. If they don’t sign the agreement, then they are not entitled to receive the shares. Ruling from the grave? We will leave that to you to decide.

Superannuation

A superannuation death benefit can only be paid to certain authorised individuals. This includes a spouse, children, legal personal representative (LPR) or a person in an interdependent relationship with you.

To nominate someone to receive superannuation death benefits, a nomination form must be completed. This can be either non-binding or binding on the trustee of your superannuation fund. This nomination will direct who is to receive your superannuation death benefits.

For superannuation death benefit to be paid to a sibling or a parent, or to be held upon trust for children until they turn 25, then a LPR (your executor) can be nominated to receive the death benefit.

It is only when the LPR has been nominated to receive your superannuation death benefit that a Will can determine who will receive your death benefit. If a Will does not specifically deal with the receipt of death benefits, then the death benefits paid to the estate will form part of the residuary estate.

Conclusion

A Will is not always enough. Don’t assume a Will can arrange everything for you and don’t leave it to the last minute to address. Depending on the structure in which you own your wealth and how you want to deal with it, you may need supplemental documents to sit alongside your Will to ensure your testamentary wishes and intentions can be carried out.

If you have Family Trusts, companies or even superannuation, then it may be time for you to review your estate planning to ensure it meets your personal and financial circumstances, and your testamentary wishes.

Contact our Wills, Trusts & Estates team to review an existing estate plan or for assistance in developing an estate plan that will meet all of your needs.