LIfe & Life after Death – key legal documents you need to consider
July 2010 David Davis, David Davis & Associates
Set out below are some simply explained need to know details on:
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.
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
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.
ENDURING POWERS OF ATTORNEY: A GUIDE
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.
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.
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.
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 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:
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.