Generally speaking, you can manage your estate planning in order to direct what property of yours you would like to find its way into a testamentary trust created under your will for your beneficiaries after you die. But the following should be borne in mind.
Joint Tenancy
Property that you hold as a joint tenant with another person will not pass via your estate or be dealt with under your will. That property will automatically pass by operation of law to the surviving joint tenant. This is usually the case with a family home held as joint tenants by spouses. Then, after the death of the second spouse, that property would ordinarily be dealt with under the surviving spouse’s will and may then be settled on the testamentary trust.
If you would like more information, contact Hansons Lawyers Wills and Estates team on 4222 2666.
Superannuation Death Benefits
Superannuation death benefits will ordinarily be paid, not out of your deceased estate, but directly by the superannuation fund in accordance with any binding death benefit nomination that you have made with that fund and that remains current. Be aware that those nominations often lapse after three years and need to be renewed. There are non-lapsing nominations available in some funds. You need to check this and ensure that you properly execute a binding death benefit nomination and lodge it with your fund so that your intentions are carried out.
It is also important to note that if there is no binding nomination with respect to superannuation death benefits then those benefits will be paid out by the superannuation trust fund and its discretion. If this happens it may defeat what you intend with your estate planning.
Ordinarily, we recommend you execute a binding death benefit nomination in favour of a spouse or any other tax dependent you may have, such as a child, as your tax dependents will receive those death benefits with the tax concessions applicable from time to time with respect to superannuation death benefits.
However, in order to attract the benefits of settling the superannuation death benefits on the testamentary trust we recommend you execute a binding death benefit nomination with your fund in the following terms: “To my Legal Personal Representative as to 100%”.
This means that the whole of the death benefits will be directed to your executor to be dealt with in accordance with the terms of your will. Those monies would then be settled on the testamentary trust in favour of your spouse, or surviving children or any other primary beneficiary you nominate as the beneficiary of your testamentary trust.
If that beneficiary is a tax dependent, such as your surviving spouse or child of yours under the age of 18 years, then the gift will be subject to the tax concessions available from time to time in relation to superannuation death benefits.
If you do not direct your superannuation death benefits to your Legal Personal Representative (that is, your executor) then your nominee under your binding death benefit nomination, if named personally, will receive those monies absolutely instead of through the shelter of the testamentary trust and they will not have the asset protection or income distribution benefits available under a testamentary trust.
Proceeds of a Life Insurance Policy
Proceeds of a life insurance policy will be paid to your estate and settled on the testamentary trust if the life insured under the policy is yours and you are also the owner of the policy. This is the ideal outcome so that those funds are settled on the testamentary trust and gain the asset protection and income distribution benefits of the trust.
If the owner of a life insurance policy on your life is another person, such as your spouse, then the insurer will pay the proceeds of the policy on your death absolutely to your spouse and those funds will then be exposed and at risk to any creditors of your spouse, or in the event of your spouse’s bankruptcy or in the event that your spouse re-partners and then suffers a relationship breakdown.