July 2010 David Davis, David Davis & Associates

Set out below are some simply explained need to know details on:

• Wills
• Testamantary Discretionary Trusts
• Enduring Powers of Attorney
• Family Discretionary Trusts

Whilst most of us do not like to have to deal with the issues of death or incapacity, if we really want to protect our families, our businesses and our business partners, we need to plan and we need to know what it is we are planning for.

WILLS: A GUIDE

Take your time going through the issues below. Some of them may be confronting, and you may find that you must plan for options that you have not even considered yet.

It may also help to consider these important issues with your accountant and/or financial planner. Remember, once you have made your decisions, you will have made a plan for your family’s future that will cover most of the possible outcomes. However, you can always change your Will later if circumstances require it.

• Your first choice of executor

  Your Executor is the person you appoint in your Will to carry out your wishes as set out in your Will. After your death, the Executor may need to apply to the Supreme Court for a grant of Probate to be given lawful authority to administer your estate.

• Your second choice of executor

  The Substituted Executor is your second choice of Executor who only administers your estate if your first choice of Executor is unable or unwilling to take on the role. Where you are in a relationship with another, we suggest that you consider both appointing the same person or persons in your Wills to be your Substituted Executors.

• Guardians (children under 18)

  Who would you want to have the daily care and control of your children under the age of 18 if you both die? For example, you might decide to appoint your Substituted Executor as your Guardian. You will also need to consider whether the Guardian is to be involved in the financial administration of the estate.

  If you appoint more than one Guardian, it may be best for them to be from the same household. If they are to have the daily care and control of the children, then we they should have the absolute right to do so. You may also wish to consider whether your children are to be brought up in a particular religious faith.

• Your beneficiaries

  Your beneficiaries receive the distributions from your Estate upon your death. Please consider the following:

  – If you are in a relationship and only one of you dies, leaving a surviving spouse or partner:

  Many husband and wife Wills appoint each other be the sole Beneficiary as well as sole Executor. This makes good common sense. However, where spouses have been married before, if one spouse dies leaving the whole estate to the surviving spouse, then the surviving spouse owns everything in her or his own right. The children in this case own nothing, and they can only rely on the surviving spouse s good judgment to deal with assets and income as she or he sees fit.

  An important point: unless the Will states otherwise, a beneficiary must survive the deceased by 30 clear days. Otherwise the law presumes that that beneficiary has predeceased the deceased.

  – If you are in a relationship and both of you die:

  Parents often wish to give their estate to their surviving children. If you wish to include specific provisions, review your Will whenever your circumstances change. Otherwise, review your Will every few years to ensure that your intentions are still appropriate.

  – At what age should your children get a share of your estate?:

  – What happens to children who may be born after your death? If you consider that artificial insemination or other technological advances should be allowed for in your Will, please let us know.

  – Grandchildren:

  Your children may have children of their own when you die.

  Some people prefer that only their surviving children share in their Estate, while others leave specific assets to beneficiaries named in the Will.

  – Death of your whole family (for example, in a car, train or plane accident):

  Tragically, this occurs. You may wish to consider your options carefully, and discuss these options with me.

  – Other wishes, such as funeral, cremation, organ donation:

  It is a good idea to discuss and share your wishes with your family and/or your Executor. This can save much anxiety later on.

• Superannuation

  Superannuation is not an asset of your Estate. Only if the super fund trustee in fact pays the money to your Estate can your Will control the distribution of the funds. While there are procedures to appeal against a decision of super fund trustee, these are complicated and it is wiser to deal with this issue now.

• Special instructions

  Please let me know if you have any special instructions to put in your Will. For example, you might have special requirements for burial or cremation, or you might have children by another marriage, or you may conduct your own business (personally or through a partnership or company or trust).

• Administration of your estate

  To make administration of your estate easier, please compile a list of your current assets and liabilities, bank details, financial contacts and so on, and keep this list with your Will along with any special wishes.

• Testamentary trusts special considerations

  ?If you are likely to be leaving a spouse and/or children considerable assets under your Will, you may affect future pension entitlements. Testamentary Trusts (trusts created under your Will) can avoid such a problem.

  Testamentary Trusts are also appropriate options when you are concerned about leaving assets to a beneficiary who is a spendthrift, who may later become bankrupt or possibly suffer a marriage breakdown.

TESTAMENTARY DISCRETIONARY TRUSTS: A GUIDE

What are they”

These are similar to discretionary family trusts. However, while family trusts are created during a person s lifetime, testamentary trusts are created under a person s Will and operate after that person dies. The Trustee of the Will controls the trust assets for the benefit of the beneficiaries.

How do they work?

The Will usually contains a separate discretionary trust for each of the Willmaker s primary beneficiaries to avoid potential tax traps involving family trust elections. The Trustee of each trust has the discretion to decide which beneficiaries are to receive distributions of income and/or capital from that trust, and will apply for a separate TFN, operate bank accounts, keep separate trust records and lodge separate tax returns.

When do they start?

They start after the death of the Will-maker once the estate administration has been completed.

When do they end?

They will last a maximum of 80 years.

What are their assets?

Only sole assets owned by the Willmaker pass into the trust. Assets held jointly or in other entities (such as existing family trusts and companies) do not pass into the trust. As noted above, superannuation and life insurance proceeds do not automatically form part of the Estate.

Advantages: Tax Flexibility & Asset Protection

Tax Flexibility

• Income Splitting: Total tax payable by a beneficiary on income earned by the trust can be reduced
• Income to Minors: Income can be distributed to minors at normal adult marginal rates (the first $6,000.00 of trust income is distributed tax-free). Family trust distributions to minors are extremely limited (plus any low income rebate) before being taxed at the top marginal rate.
• Stamp Duty: No stamp duty payable on the creation of the trust, and property under the Will transferred into the trust is exempt from stamp duty.
• Capital Gains Tax: Capital gains tax may be effectively deferred. It is not until the trust disposes of an asset that it attracts CGT. Capital gains can be distributed between beneficiaries in a tax effective manner.
• Land Tax: Trustees can access land tax concessions.

Asset Protection

Beneficiaries don t actually own any of the assets, but only become entitled to any trust capital and/or income after the Trustee decides to make a distribution to them. Because the Trustee holds the legal title to the trust assets, these assets are generally immune from attack by spouses, creditors and other beneficiaries.

Other examples:

• Minor or impaired mental capacity
• Gambler, alcoholic, spendthrift, etc
• Bankrupt
• Marital breakdown
• Restrict access to capital and/or income until a certain age

ENDURING POWERS OF ATTORNEY: A GUIDE

Overview

There are three types of Enduring Powers of Attorney: Financial, Medical and Guardianship. All must be signed in the presence of two witnesses, one of whom must be qualified to witness statutory declarations.

You as the Donor appoint others to manage your affairs on your behalf, especially if you lose capacity. It is a powerful and binding legal document and retains its validity (or endures ) even when you are no longer capable of handling your own affairs. You can revoke it at any time. It is automatically revoked on your death.

Financial

This gives one or more people wide powers to act as your Attorneys to manage your personal and legal affairs. If you choose, it can be used while you are still able to look after yourself.

Your attorney can purchase and sell your properties, control your investments and assets, collect your income, operate your bank accounts, organise your income tax or pension requirements and in general manage your assets. You can set limits on the powers you give to your Attorney. You can appoint one person or two or more people to be your attorneys. If you appoint two or more, you can choose to have either one or the other to act, or you can state that both must act jointly on your behalf. You can nominate when and under what circumstances your Power of Attorney will start.

A Certificate of Witness must be prepared and witnessed by at least one person authorised to sign Statutory Declarations, (such as a Solicitor). This certifies your capacity as the Donor (the person making the Power of Attorney). To have an effective document, your Attorneys must also sign a Statement of Acceptance and give undertakings as to their conduct, and must keep accurate records of all dealings and transactions they make while acting as your Attorneys.

Medical

Unlike the Financial Power of Attorney (which can be used at any time), your Medical Power of Attorney only takes effect after you lose capacity. Your Agent (the person you nominate to act on your behalf) then has the power to make decisions about your medical treatment. Medical Treatment includes major medical procedures such as operations or taking medicine or drugs. It does not include minor medical procedures involving pain relief or providing food and water.

Your Agent also has the power to refuse any medical treatment that would greatly distress you. It only allows one person at a time to make your medical decisions. Your other Agents can only act if your first Agent is unable to act or has died.

Guardianship

This enables you to appoint an Enduring Guardian to make lifestyle decisions on your behalf after you have lost capacity. You may choose to specify exactly the type of decisions the Guardian can or cannot make, and any other factors the Guardian should take into account in making those decisions. If you do not clearly state the powers the Guardian is to have, and the time comes when you are no longer able to make decisions for yourself, your Guardian will have the same powers as if he or she were your parent and you were the child.

To have an effective document, your Guardians must also sign a Statement of Acceptance in the presence of two witnesses (one of whom must be qualified to witness statutory declarations).

FAMILY DISCRETIONARY TRUSTS: A GUIDE

What are they?

Also called family trusts , these enable income and/or capital to be distributed to beneficiaries (often members of the same family) at the trustees discretion. However, until trustees exercise their discretion, beneficiaries have no claim on the trust property. This enables discretionary trusts to be used for asset protection and tax flexibility.

What are their benefits?

In addition to asset protection and tax flexibility, other benefits include flexible income and capital distributions.

Trust deeds can be adapted to specific needs

When do they start?

Discretionary trusts are created when settlors give money or property ( the settled sum ) to trustees to hold on behalf of the trust beneficiaries. Settlors should not be beneficiaries of the trusts. The Settlors job is simply to create the trust fund and nothing else. To be valid, trust deeds must be stamped and will incur stamp duty of $200.00.

Trustees

Trustees legally own the trust property, and are responsible for trust management.

They have many legal duties imposed on them. For instance, they must act in the best interests of the beneficiaries. However, their overriding duty is to obey the terms of the trust deed.

Under certain circumstances, trustees can be personally liable for trust debts and transactions. Sometimes, it is a good idea to use companies as trustees, even though directors may be personally liable in certain circumstances, because:

• Companies never die
• When directors or shareholders die, new ones can replace them without changing trustees of the trust
• Trustee companies will not have any assets that could be claimed by creditors of the trust

Appointors

Appointors have the actual control of the trust assets because they have the power to appoint and remove trustees.

Having a number of appointors, including an independent appointor, can give greater benefits for asset protection and succession planning. Companies can also be appointors.