Even though you have prepared a will setting out your wishes, some eligible people like children, ex-spouses, dependants or those that have a close personal relationship with you may still make a claim against your estate when you pass away, effectively against your wishes. These people can make a claim against your estate for the court to make provision for them because the Will inadequately provided for them. A claim is made under the NSW Succession Amendment (Family Provision) Act.
For many people the thought that their assets will go to people they do not want it to is horrifying. There are many reasons why a parent does not want their hard-earned assets going to a child, dependent past or present, or a former spouse. The good news is that there are things that can be done to protect your estate from claims of others. This page has been prepared to help you understand what may be available to you. The law in this area is quite complex so we recommend that you receive legal advice from a lawyer specialising in Estate Planning and where necessary a financial advisor.
What you can do to protect your assets
One important thing to note is that each of these options are only available while you are still living. The executor of your estate will be powerless to implement any of these options after your death.
1. Transferring assets outright to the intended beneficiary now
You can transfer your personal assets to the people that you would like to inherit your estate now. Gifts made while you are living and of sound mind do not form part of the assets of your estate when you die and therefore a Family Provision claim cannot be made against these assets. If gifts are made it would be wise to have these gifts recorded in a document prepared and witnessed by your lawyer.It is wise that you receive good legal and tax advice before doing so as stamp duty may be payable on Real Estate and other assets and Capital Gains Tax may apply.
2. Purchase property or change existing property to “Joint Tenant.”
In New South Wales, you can purchase real estate property as tenants in common or as joint tenants. If you own property as tenants in common when one of the joint owners dies that property forms part of their estate and is open to a Family Provision claim. However, if the property is owned as joint tenants the property automatically passes at death to the other joint tenants. This property does not form part of the estate of the deceased and therefore is NOT open to a claim under the Succession ( Family Provision ) Act.
For example, an elderly couple who sell their home to down-size may purchase the property as join tenants. If they trust children who they desire will inherit the property they could include them on the title of the property as joint tenants. This would mean that when the parents died the children listed on the property as joint tenants would become the lawful owner of the property upon death and a claim cannot be made against this asset.It is also possible to change the nature of the ownership of property from tenants in common to joint tenants. The heavy costs of Stamp Duty and Capital Gains Tax implications will need to be considered, but some exemptions might apply if transferring to a spouse. We can advise on both the legal and tax implications of such a transaction.
3. Transfer assets to a trust
You can transfer assets to a discretionary trust. A discretionary trust operates by having a legal owner (“Trustee”) administer a deed. This deed dictates who the beneficiaries are and what they are entitled to. It also enables the trustee to divide the income generated by the trust and / or the capital itself in any way which the trustee wants if the power is in the deed.The law imposes several obligations upon the trustee. One of these obligations is that the trustee has a duty to act in good faith. This requires the trustee to do what is generally in the best interests of the trust.This works after death in that the asset is not owned by you , but by the trustee, therefore it is not part of your estate and therefore is safe from any claims under the Family Provision sections of the Act.Alternatively, you may decide to declare a trust, which will result in you the owner controlling the asset however it will be for the benefit of the named beneficiary. You will need to comply with the Trustee Act and must faithfully comply with your fiduciary responsibilities. Again, effectively you are transferring ownership from you to the trust so the asset does not form part of your estate upon death and therefore cannot be the subject of a claim of Family Provision pursuant to the Succession Act.
Stamp Duty and Capital Gains Tax considerations will need to be assessed before implementing this strategy.
4. Options
This is a less common strategy but is certainly a very effective way of retaining control as long as possible and the process enables your closest beneficiary to opt in and buy the assets from your estate when you pass away presumably on most favourable terms.It is very important that your beneficiary has paid valuable consideration for the option.This works by having a deed (document) wherein you give your preferred beneficiary AN OPTION to buy the property from your estate on favourable terms once you have passed. So you could give a child an option to purchase your family home from the estate for a certain price. The value of the house may be $750,000 and you give them the option to purchase the home for $100,000.Stamp duty, Capital Gains taxes and in some instances GST implications will need to be considered.
5. Superannuation
Funds that are held in a superannuation fund do not form the assets of a person’s estate for distribution under the terms of a will. The Superannuation Fund will distribute the money held in Superannuation to the person(s) you have nominated in a binding death benefit nomination. This distribution cannot be challenged by a claim under the Family Provision sections of the Succession Act. We recommend that you check with your superannuation provider to ensure that you have completed a binding death benefit nomination as some declarations can be non-binding.
WORD OF CAUTION:
For methods 3, 4 and 5 to work, regard must be had to the Notional Estate part of the Succession Amendment ( Family Provision ) Act – if you fail to properly plan for those sections, then you are setting your whole plan to fail. Part 3.3 of the Act essentially expands the deceased person’s estate – for the purposes of the operation of that Act – beyond those assets which are in the deceased’s name at their death.
If you are wise about your estate planning, you can prevent or limit the claims that can be made against your assets. This may mean that unnecessary claims and legal costs will not diminish the size of your estate.
