The end of the financial year and the beginning of a new one is traditionally when our thoughts turn to our financial affairs. It can also be a convenient time to have a look at our wills and estate planning. It is not unusual that wills are forgotten, or the (re)making of them postponed, although they may need to be updated.
To assist you in considering your will and its review, a number of simple but important questions are involved.
What is a will?
The simple answer is that a will is a document which states who is to be your executor, how your property is to be distributed after death, who are the beneficiaries (persons, charities or organisations) and on what basis the gifts are made.
There are legal requirements for the signing and witnessing of a will. The Australian courts hear multiple cases, on various grounds, regarding the validity of a will. It is best, therefore, to have your will professionally prepared to minimise the risk of a legal dispute.
Who and what are executors?
The appointment of an executor is important because the executor has the responsibility to look after your estate, and to ensure that your beneficiaries receive their gifts.
The appointment can be of one or more individuals, a trustee company, a lawyer, or an accountant.
The role of an executor is twofold:
The executor needs to apply for a grant of probate of the will. Probate is the court’s approval of the validity of a will. Probate is usually required because the holders of the estate assets, such as banks and companies, will not release the assets without probate being granted. Probate is also legal proof that the executor has the right to act for the estate.
The second responsibility is the collection of the estate assets and their distribution to your beneficiaries in accordance with the terms of your will.
There are other things to consider: such as whether the proposed executor is willing to be appointed; whether you should appoint more than one executor (and if more than one, you are confident they will work harmoniously with each other in carrying out the role); and the appointment of a younger executor than you is an obvious consideration. Having integrity and common sense are clearly essential for any executor.
Who should be beneficiaries?
The beneficiaries can be a spouse, partner, children, other family members or friends. A charity or company can also be a beneficiary.
An important question to ask yourself is who has the greatest claim on your estate? If certain specified individuals, such as a spouse or child, considers that your will has not provided proper and adequate provision for them, the laws of all states allow the dissatisfied person to make an application to the court seeking provision for what ‘a just and wise testator would provide’ in the circumstances. In order to avoid that risk, you need to ask how much is to be given to each beneficiary? Is the estate given to one person or a number of beneficiaries? Are the beneficiaries to include charities? Are beneficiaries to be given a percentage of the estate or a set amount, mindful that gifts generally lose value over time.
The type of gift is also relevant to your decision. Are there particular heirlooms to be given to a particular friend or to be kept in the family? Is there a valuable art piece that should be gifted to a museum or gallery?
Estate property can be sold, and the proceeds distributed among beneficiaries or given to charity.
What are the estate gifts?
What are the gifts to be given to the beneficiaries?
After seeking legal and accounting advice, some people set up trusts and companies to control or own their assets. The purpose for setting them up is often for asset protection and for taxation advantages. It is therefore important to be aware of the assets held in your own name as only these will form part of your estate and pass in accordance with the provisions of your will. For example, assets held as joint tenants pass to the surviving joint tenant. If your joint ownership is as ‘tenants in common’ your share will pass by your will. When we meet with you, we will explain the legal consequences of assets held solely, jointly or by a trust or company.
The appointment of guardians for minor beneficiaries
The law provides for the appointment by will of guardians for the welfare of your minor children, subject to legal requirements.
When does a will take effect?
The answer to this question is obvious, but it is an important one: namely upon death.
The distinction, however, between the operation of wills and powers of attorney is not always understood. A power of attorney document ceases to have effect on the death of the grantor of the power of attorney. The attorney has no power to act as attorney after the death of the grantor.
As time passes after a will is made, changes in the lives and asset holdings of the testator and the beneficiaries often occur. For this reason, regular reviews of the will are important.
What if there is no will?
When a person dies without a will, it is known as intestacy. All Australian states have laws which determine how an estate is to be distributed in the event of an intestacy. For example, if the testator is survived by a spouse, by a spouse and children, or only by next-of-kin.
The law also provides for a court to make a will for a person who lacks testamentary capacity or is a minor. These wills are known as statutory wills being authorised by the court after prescribed legal requirements have been met.
What about a testamentary trust?
Apart from asset protection and taxation advantages, one way to make gifts via a will is to create a testamentary trust which holds assets on trust for beneficiaries. Rather than giving immediate gifts to beneficiaries, the trustee of the trust has the discretion to distribute gifts from the trust. For example, such a trust would be worthwhile where there is a spendthrift or drug addicted child, but there are other less obvious benefits of including a testamentary trust for beneficiaries rather than an outright gift.
Answers to the above questions may assist in your approach to the making your will or in reviewing your current will. The ultimate question is whether your will expresses clearly your intentions for the disposition of your ‘worldly goods’.
And finally, a valuable ‘new (financial) year’s resolution’ would be to mark the month of June as the time for the annual review of your will.
By ANDREW MINAHAN