Good Will -v- Bad Will

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1 At CRH Law we have been giving practical advice to families for many years, ensuring that in the event of death or incapacity, your estate is administered according to your wishes. Our team can show you strategies to make the most of your assets, ensuring you and your family receives the maximum benefit from your hardearned money. Call us on You and your Life Janet Holmes a Court was once quoted in the Financial Review as saying: If Robert had made a Will, life would have been very different. She was lamenting her husband, Robert Holmes a Court s failure to make a Will despite the fact that he apparently walked around with a draft in his briefcase for a month before his sudden and unexpected death. She was right of course. If Robert had made a Will, things would have been so much different and better for Janet and the children, not to mention the family company, Heytesbury Pty Ltd and its shareholders. Perhaps like you, because he spent so much of his time looking out for the business s affairs, he gave little thought or time to looking into his personal affairs. There is a saying: If you don t spend a little bit of time and money on yourself, then you re a bad judge of a good investment. Will making is not necessarily a simple matter of, I give everything to my spouse and then to my kids. Like Janet Holmes a Court, this sort of Will can be just as bad as no Will at all. Many of us don t understand, for example, that if most of our assets are in a family trust then we don t own those assets and they can t be disposed of in a Will. Superannuation is also a peculiar and complex creature that does not fit comfortably within your estate. The motivation to have a Will is just the first hurdle. Having a good one is the next. If you are prepared to invest a little bit of time and money in yourself, we can give you a brief presentation on the benefits of making a good Will (and other handy devices) and convince you to actually do it! The case for testamentary trusts and other things If you believe everything you read or are told, a Will must be simple, optional and definitely cheap. Having no Will is the cheapest Will you can have but it could be very expensive for others and your ultimate beneficiary will be lawyers! Having a Will is a huge leap forward for many people. But, even if you have one, is it the best Will in the world or is it the worst? Did you get it done on the cheap? If you did, then the old adage You get what you pay for! may then become Your beneficiaries get what you pay for!. If you pay next to nothing, that s what they ll get. Level North Quay Brisbane QLD 4000 PO Box George Street Post S hop QLD 4003

2 Let me explain with a story that is typical of the consequences of a cheap Mum & Dad Will and is adapted from a story first told by Alan Swan of Moores Legal in Melbourne. Bob and Betty Bob and Betty had been married for many years and had four grown up children. Bob died a few years ago leaving his entire estate to Betty. Like most parents, Bob and Betty had invested their lives and loves in their children who had rewarded them with varying degrees of gratitude and personal success. Bob and Betty had used financial advisers and had scrupulously maintained good control over their investments but had studiously ignored getting good estate planning advice despite the urgings of their financial advisers. After Bob died, Betty went to see her local solicitor and made a new Will in which she gave all her estate to her four children, Belinda, Sophie, Brian and Jenny in equal shares. It was a cheap and simple Will, in fact, so cheap, the lawyer didn t even charge for it. Then Betty died. This is the nightmare that then played out for Betty s estate under her cheap and simple Will. Belinda s Share Belinda s husband s business was teetering on the edge when Betty died. Belinda was more interested in the family than the business but she did remember her husband getting down on his bended knees recently to get her to sign a document (personal guarantee) at the bank in a last ditch attempt to prevent the collapse of her husband s business. It didn t help and the business disintegrated into a creditors feeding frenzy. Belinda s share of Betty s estate has to be paid to the Bank under her personal guarantee. Her share of the estate will not benefit Belinda or her children just her no hoper husband s creditors. Sophie s Share Sophie had divorced her husband some years ago. Undaunted by that experience but thinking she could avoid the same mistake, Sophie then lived in a de facto relationship with her new boyfriend which lasted until shortly after Betty died. Sophie had a child from the relationship and the boyfriend has now applied to the Family Court for a property settlement. The Family Court decided that part of Betty s estate should be paid to Sophie s former partner as part of the property settlement order, rather than Sophie or her child. As a sole parent, what is left over is just enough to ensure that Sophie doesn t qualify for a means tested pension but it is not enough to make her better off without a pension.

3 Brian s Share Brian has a genetic deficiency probably inherited from some ancestor an addictive personality leading to compulsive gambling. A regular and stable job has eluded him for a long time and, in any event, it doesn t have the same adrenalin rush as accumulating those little round plastic chips or succumbing to those persuasive exhortations How to become a millionaire in just 3 months. What Happened? His share of Betty s estate has fed the hungry and relentless demands of the casino operators and white shoe brigade peddling their Get Rich Quick Schemes. Jenny s Share Jenny is the black sheep of the family. She is a doctor in a stable marriage and is financially secure, if not affluent. She has two primary school children. Her share of her mother s estate however has left her with a problem a tax problem. The sudden injection of the money from her mother s estate has boosted her finances and exposed her to even higher income tax liabilities. If only her mother had prepared a Will which included the option of a Testamentary Trust which would have enabled Jenny to take advantage of the concessional tax rates for children receiving Testamentary Trust income. She has less money to spend on her children s education because much of the income from her share of the estate is going to the Government in the form of Income Tax. The Meaning? Bob and Betty may as well have spent all their hard earned wealth on themselves and become part of the SKIN brigade Spend Kids Inheritance Now. Instead, like most people, they thought they would do the right thing by their children and their grandchildren. Their simple and cheap Will has meant that less than half of their wealth went to their children or grandchildren. The rest has helped out other people who they had no intention to benefit, namely, their family s creditors, ex boyfriends, casino operators and the Government. If only they d been told about the creative and beneficial opportunities of incorporating Testamentary Trusts into their Wills. The Message A Will is not necessarily simple, cheap or optional. If you believe it is, you may very well leave a burden to your beneficiaries not a benefit. It may cost you little but cost them a lot. A little bit of proper estate planning and careful drafting of a Will can ensure that the people you want to receive your estate, will. Remember, if your Will is deficient, would you rather know now or leave it to your family to find out? Now read on to see the solution.

4 Testamentary Trusts Lawyers, like many other professions, are good at creating jargon or phrases that few people understand. "Testamentary Trust" is probably just such a phrase. Put simply, however, many of you would already have a Family Discretionary Trust. A Testamentary Trust is simply a discretionary trust which is incorporated into your Will. Why are they popular? There are significant benefits that can flow from incorporating Testamentary Trusts in your Will. Generally, your beneficiaries are the trustees of their individual Testamentary Trusts as well as a beneficiary of that Trust. This means that they can control the assets and the income of the Trust and distribute it to themselves or members of their family including their children during the life of the Testamentary Trust but they don't actually own the assets of the Trust. The benefits of this are: Bankruptcy As with the sad tale of Belinda, if Betty had incorporated a Testamentary Trust for Belinda in her Will, Belinda's share of Betty s estate would have been protected against the claims of her husband's creditors. Divorce In Sophie's case, while in recent years the Family Court has made it far more difficult, the Testamentary Trust may have protected her against the claims of her loving ex-spouse or de facto because Sophie would not have received her share of Betty s estate in her name but rather in her capacity as trustee of a Testamentary Trust. Spendthrifts In Brian's case, being the compulsive gambler, his share of Betty s estate would have also been protected against the claims of the "Get Rich Quick Scheme" operators and the casinos. Taxation Jenny, the stable child, would have also had the advantage of the significant tax benefits associated with the operation of a Testamentary Trust where there are children who are beneficiaries of that Trust. Let me explain how Jenny would have been better off. Her share of Betty s estate is $1,000, If this was invested at 8% it would provide an income of $80, With no other income, her tax position would be: Income $80, Tax $17, But, if Betty s Will had established a Testamentary Trust controlled by Jenny providing for Jenny and her three children to be beneficiaries, her tax position could be as follows: Beneficiary: Income: Tax: Jenny $20, $nil Child 1 $20, $nil Child 2 $20, $nil Child 3 $20, $nil TOTAL Tax: $nil The saving on tax is $17, where the Testamentary Trust was used. Can you see the benefits?

5 You can never know the circumstances of your beneficiaries when you die. Will making is very much like clairvoyance or crystal ball gazing with all the their limitations. If your Will incorporates Testamentary Trusts, you can at least give your beneficiaries the chance to make appropriate decisions about how they will receive the benefits from your estate that may be most advantageous to them. If you simply give everything to them absolutely, this may in fact be giving them the worst possible benefit. Testamentary Trusts allow your beneficiaries to take advantage of the protective and tax advantages referred to above. Think about it! Get your advice from the experts At CRH Law we have been giving practical advice to families for many years, ensuring that in the event of death or incapacity, your estate is administered according to your wishes. In addition, our team can show you strategies to make the most of your assets, ensuring you and your family receives the maximum benefit from your hardearned money. Other elder life services Our elder life services team can also provide expert advice on: Gifts or loans to your Children Loans from your children Divorce and property settlements Some Other Things Any of us could lose the capacity to make decisions through ageing, sudden illness, accident or injury. Did you know that, without an Enduring Power of Attorney, your spouse or next of kin is not entitled to make financial decisions for you if this should happen. Is that what you want? If not, you need to do an Enduring Power of Attorney - NOW! As well, do you have beliefs or views about whether you would or would not want life sustaining measures if you are ever incapable of making that decision yourself? If so, how do you know that your wishes will ever be respected. The only way to ensure they are is for you to do an Advance Health Directive in which you can say what you want if it ever comes to that. Remarrying or re-partnering Retirement Villages Aged care Incapacity and Guardianship Problems with other Professionals Discrimination Selling your home Elder Abuse Reverse Mortgages Family Trusts and Companies Family disputes and mediation Family agreements Superannuation Contact us today on Note: This document provides general information only and does not constitute legal advice. For comprehensive advice please contact us. Level North Quay Brisbane QLD 4000 PO Box George Street Post Sho p QLD 4003