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Financial planning, Investment and Self Managed Super Fund Article
By Tony Crilly
1st October 2006
This article may be out of date.
No matter how long you are in business, it never hurts to re-visit the basics. Recently, a colleague forwarded some information to me which set out some handy information for the preparation of an Estate Plan.
Establish exactly what the resources the willmaker has:
- set out the client’s wishes and prepare a diagram of the Family Tree and Asset Structure
- provide protection of capital in circumstances of bankruptcy, disability or divorce
- effectively deal with control of Discretionary Trusts and Corporate Trustees
- ensure that an appropriate nomination has been made for superannuation entitlements
- have clear directions for management of Trusts for beneficiaries under the set age
- check the ability to adjust the entitlements between beneficiaries where appropriate (i.e. one takes a property and the other takes the cash)
- ensure there are options available for the beneficiaries to take either by cashing out the interest personally or leaving it in a Trust situation
- deal with the insurance proceeds, particularly if they are within super
- make the terms of the Trust in the will clear as to their purpose and their terms
- ensure there are clear terms about appointment and removal of a Trustee (for example the executors should retire when a beneficiary reaches a certain age, say 25 years)
- involve the financial planner, lawyer and accountant to confirm the factual basis of the likely claims.
It is a very tricky area and one which essentially involves a great deal of commercial strategy and drafting. It is common to find that a small business owner has quite a few structures that hold significant assets, the future control of which is unclear.
Deal with provisions
It is essential that careful scrutiny of the Trust Deed occur to ensure that the provisions on the death of the client are dealt with adequately.
Often there are a number of problems with Trustees including:
- no clear appointor
- a default appointor who is inappropriate (for example, a former spouse)
- the likelihood of an argument about control of the Trustee in the future
- possibility of a dispute between the executors as legal personal representatives of the controlling individual
- unusual provisions about entitlements of beneficiaries on the death of a person
- the vesting date of the Trust, which should be carefully checked
- whether the Trust is to be wound up on the death of a person
- if the terms of the Trust enable a splitting of the capital assets to other Trusts
- what the present entitlements of the existing beneficiaries are (i.e. any loans to be paid out?)
- who is included in the class of beneficiaries.
These are complex questions which must be answered in most estate planning strategies.
Control of the Trustee Company
The future control of the Trustee Company is also critical. Often the shares held in that Trustee Company will determine the ultimate controlling individuals. It is common for clients to state that a private company is also the appointor of a Trust and, therefore, whoever holds the balance of power by voting entitlements attached to shares in that company will dictate the control and discretion of the Trusts.
Clients are often horrified at the thought that their son-in-law or daughter-in-law will control a large part of their wealth…
This can be very significant if a large portion of the client’s wealth is owned by that Discretionary Trust.
Often wills are established with a Testamentary Discretionary Trust. The function of this is exactly as its name states: the entitlements are in the discretion of the appointor of that Trust. Therefore, careful consideration must be given to who will be controlling that Trust now and in the future. Clients are often horrified at the thought that their son-in-law or daughter-in-law will control a large part of their wealth should they and their children pass away at or about the same time.
The question of Independent Trustees is also an issue that comes up frequently. This is particularly important where there is a large degree of life insurance involved. Some clients express the view that they want an independent corporate Trustee (such as ANZ or Perpetual) to manage their estate and the distribution of insurance proceeds. Their fear is that creditors may obtain an advantage if it were to fall into their estate.
More often, clients seek to find a solution so that the control of funds sourced from insurance are divided in accordance with a Schedule of Wishes, as determined by private individuals. Those individuals are generally family members or advisers who are well placed to determine the best result for the class of beneficiaries.
Tony Crilly is a solicitor of The Supreme Court Queensland and principal of Crilly Lawyers; Succession & Commercial Law. He lectures for Finsia and his team is located in Brisbane. Tony may be contacted at firstname.lastname@example.org
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