Estate Planning Solutions

Topic 11 – Sem 1 2020
Estate Planning Solutions
Question 1
(a) A Will is a legal document signed by the Willmaker, which disposes of the
Willmaker’s assets to their beneficiaries. It will determine:
-who will be in charge of the administration of the Estate; and
-how the assets of the Estate are to be distributed after death
(b) Generally, in the case of intestacy, funds are left to the next of kin.
§ if a person with a partner and offspring—from that relationship—dies intestate,
the partner is entitled to the entire estate.
§ If a person dies intestate with a partner and children from another person, the
value of the estate dictates the distribution. If the residual estate is worth more than
the statutory legacy, currently $451,909, then:
– The partner receives all personal chattels, the statutory legacy plus any
interest, and half of the balance of the residual estate.
– The children of the deceased are entitled to the other half of the balance of the
remaining estate, with equal shares for every child of the deceased.
§ No partner but surviving children
If the intestate leaves no partner but has surviving children, the balance of the estate is
to be shared equally among them. If any child predeceased the intestate and has
children of their own, these children (the intestate’s grandchildren) will receive the
share that their deceased parent would have received.
§ If an intestate has no partner and no children to inherit the estate, then the
surviving parents of the intestate receive the balance of the estate.
§ If there are no surviving parents, the siblings of the intestate will be entitled to
equal distribution of the estate. If there are no siblings, the grandparents of the
intestate will receive the estate.
§ If there are no grandparents, the aunts and uncles are entitled to equal
distribution of the intestate estate. If there is no person who is entitled to the estate of
the intestate under these provisions, then the residuary estate passes to the
government.
§ The government will fund these searches as necessary.
In the case of Carol, If the residuary estate is worth less than the statutory legacy, the
husband will receive the full amount i.e. $300,000 as this is less than $451,909 the
statutory legacy in Victoria.
If Carol were separated from her spouse, the husband would still be the legal spouse
and entitled to the inheritance.

(c)	Every person who is aged 18 and above should have a Will. It needs to be
modified whenever there is a change of circumstances which affects the Estate. A review should generally be carried out every 3 years.
(d)	Divorce does not cancel a Will in Victoria but is does cancel any distribution to

the spouse.
Remarriage does cancel a Will.
Separation does not affect the contents or validity of a Will.
(e) Role of professional trustee company
-offer independence, continuity and skill in the administration of Estates.
The role is to administer the Estate, as per the role of an executor described above
Question 2
(a)
Estate assets may include: property, chattels, shares, cash, bonds etc. (Assets owned
with another(s) as tenants in common).
Non-Estate assets include: superannuation, jointly owned assets and life insurance
proceeds where beneficiary is not the Willmaker, allocated pension with reversionary
beneficiary.
ü Jointly owned property
ü Superannuation (including superannuation pensions)
ü Life insurance
ü Assets owned by trusts
ü Assets owned by companies
NOTE: Generally speaking, you cannot deal with your superannuation in your Will.
Your superannuation interest will be distributed by the trustee of the relevant fund
(including a self-managed superannuation fund) in accordance with the governing trust
deed. You may have been asked to nominate a specific beneficiary to receive your
superannuation benefit on your death. Such nominations may be binding or non-binding
on the trustee. Where you have made a binding nomination, the trustee will make
payment of the benefit to the person or persons in such proportions as you may have
specified. Where you have made a non-binding nomination, or have made no
nomination at all, a trustee will generally have a broad discretion as to whom the
payment should be made. In some circumstances, the trustee may decide to pay your
superannuation benefit to your estate, rather than to a particular person or persons. In
these circumstances, your superannuation benefit will be distributed in accordance with
your Will as part of your residuary estate.
(b)
Where house is owned outright
-house will form part of Estate and will be distributed to spouse through the Estate or
held in a Testamentary Trust on their behalf
Where deceased had a share in the ownership:
-house may be held by way of joint tenancy – passed directly to spouse
-house may be held as tenants in common – forms part of Estate and the deceased’s
share may be distributed to spouse or held in Testamentary trust.
Question 3

(a)	Tax-free threshold of family with Testamentary Trust -$18,200 for each of the husband and 4 children = $91,000

NOTE: If a child under the age of 18 receives income from a trust established in a will
then the adult tax free threshold of $18,200 (for 2020/2021) and marginal rates of tax
will apply to the child.
(b) Tax –free threshold of family with no testamentary Trust*
-$18,200 for husband only. Children are no longer entitled to the Low-Income Tax
Offset. They can earn up to $416 and not pay tax. Refer to minor tax rates. For four (4)
children they can receive 4 x $416 = $1,664 tax free.
* Please note that income from assets in a deceased estate are excepted to minor tax
rates. However, the deceased estate will end when it is ‘administered’ whereas a
testamentary trust will continue.
Question 4
Kevin’s share of income – $10,400 p.a.

(a)	Kevin is 45 and has 2 minor children:
-Kevin is able to distribute income to his children who will be taxed at adult marginal rates of tax – no tax payable on distribution
(b)	Kevin is in receipt of Age Pension:

-As long as Kevin has no direct or indirect control over the trust (e.g. trustee of the trust,
primary beneficiary) the assets will not be counted for the purposes of establishing
Kevin’s asset test threshold. If Kevin, is seen to have any control whatsoever over the
trust, assets within fund will count towards asset test.
(c) Kevin is facing bankruptcy
-as long as Kevin does not control the assets of the trust (not the trustee), then assets of
the trust will not be available to the creditors of Kevin’s Estate.
Question 5
Issues that need to be considered:
-liquidity considerations
:the assets being passed to eldest and second child are a lot less liquid than the managed
fund, bank account and term deposit distributed to the youngest
-tax considerations
:as long as eldest sells the principle residence within 24 months, or uses the house as
his principal residence, there will be no CGT
:the second child will be liable to CGT upon sale of shares and investment property
:the youngest will have CGT implications on managed funds distributed to him
-jointly owned assets:
:the term deposit is jointly held between deceased and eldest child. Does not form part
of Estate assets and will be distributed directly to eldest child. In order for this asset
to form part of the estate, the asset needs to be held under “tenancy in common” basis
and not a “joint tenancy”.
Question 6
Remarriage renders an existing will invalid so unless the person has drawn up
a will since her remarriage, she will die intestate.
Ramifications if person was to die without a valid will in place:
Where a person dies intestate, the estate is distributed in accordance with State
intestacy laws. This situation results in the deceased’s estate being distributed
in accordance with strict government laws that prescribe the order of persons
who will share in the estate and the extent to which they will benefit from the
estate.
If the person was to die instate, all the estate will be left to husband from 2nd
marriage. Consequence of this is that none of estate may end up with children
from first marriage.
Difficulties of excluding family members from an estate distribution:
Under the Testator Family Maintenance (TFM) laws applicable to each State,
family members are provided with rights to ensure that they are properly
maintained and supported out of the proceeds of a deceased estate. If a family
member feels that they have not been adequately provided for, they have the
right to challenge the will for the right to make a claim, or for an increased share.
What can be done to restrict the opportunities for challenges against the
will:
To restrict the chances of the youngest daughter mounting a successful
challenge, it may be wise to provide for a small distribution to be made to the
youngest daughter. The reasons for the exclusion should be adequately
documented and kept with the will. Although not guaranteeing success, the
court will be provided with some understanding of the deceased’s reasoning for
excluding the daughter.
Some of the specific issues to consider including within estate
planning:
• Ensure that a new Will is drawn up and contains appropriately appointed
Executor and Power of Attorney that reflect the client’s altered
circumstances
• Investigate establishing a testamentary trust for the children. The benefits
of a testamentary trust include safeguarding the assets of the Estate for the
beneficiaries and providing a tax effective distribution of income to family
members
• Need to protect the assets of the person’s estate to ensure appropriate
distribution to children from the first marriage
• Recommend that the client contact an appropriate lawyer
• Investigate the desire of the wife and husband to retain separate ownership
of their own assets (eg. consider whether the family home should be owned
as tenants-in-common. Home would form part of estate to be distributed to
children or pl within trust)
Question 7
Taxation consequences for the estate and its beneficiaries
BHP and NAB shares – daughter Jane
Since death does not constitute a disposal of assets, there is no CGT liability
to the estate on transfer of the shares to Jane.
Jane is deemed to have acquired the shares on Betty’s date of death.
As the deceased acquired the shares in BHP prior to 20/9/85, Jane is deemed
to have acquired the BHP shares for a cost base equal to their market value at
31 July 2019.
Acquisition of NAB shares – Date shares were acquired is 1987. Hence there
will be choice of CGT discount method or frozen indexation method to
determine the cost of the shares.
There is no CGT liability to Jane until she disposes of the shares.
Home unit – son John
No CGT liability to the estate on the transfer of the home unit to John.
The home unit will vest in John’s trustee in bankruptcy and will be used to satisfy
his debts
Investment property – sold and held in trust for grandchildren
Disposal of the investment property will result in a capital gain (i.e. the sale price
less original purchase price indexed to Betty’s date of death) and hence a CGT
liability to the estate.
The cash left over after payment of CGT can then be held in trust for the
grandchildren.
Half share in family home – sister Mary
No CGT liability to the estate on transfer of Betty’s half share in the family home
to her sister Mary.
Since the family home was both Betty’s and Mary’s principal residence during
the time they jointly owned it (and will presumably continue to be Mary’s
principal residence), Betty’s interest will pass to Mary with no CGT implications
– in other words, the family home will maintain its CGT exemption.
Suggested changes to Betty’s estate plan
Home unit – son John Leave the home unit in trust for John until he is
discharged from bankruptcy (or if it is a simple bankruptcy, for a set period
of time, e.g. 2 years). This will avoid the trustee in bankruptcy taking
possession of the home unit.
However, when John is discharged from bankruptcy (or the set period of time
elapses), the transfer of the unit from the trustee to John will constitute a
disposal for CGT purposes and the CGT liability will transfer to John, but it
would only be in respect of any capital gain
(reduced by inflation) since Betty’s death.
Investment property – grandchildren
Leave the investment property in trust for the grandchildren until the eldest child
turns 25. Since income distributions to minor beneficiaries of testamentary
trusts are taxed at normal adult rates, up to $6,000 can be distributed tax-free
each year to each grandchild.
When the eldest grandchild turns 25, the trustee could, depending on the
grandchildren’s financial circumstances:
sell the investment property and pass the proceeds, net of CGT, to the
grandchildren or —
transfer the investment property (and CGT liability) to the grandchildren.

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