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Estate and Succession Planning

Estate and Succession Planning

By Nathan Yii

Planning Succession Wills 

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This article has been contributed by Nathan Yii, Principal, Nathan Yii Lawyers.

Estate and succession planning is more than just the preparation of Wills and powers of attorney.  It involves taking a “prevention is better than cure” approach to planning, factoring in transfer of wealth during one’s lifetime, on death and also minimising problems on incapacity. 

Lawyers advising on estate planning need to carefully manage taxation issues, asset protection, and family provision as well as the risk of assets being transferred.  Sometimes it may be difficult to achieve the best of all worlds and in those circumstances, the client needs to be fully aware of the issues to make an informed decision as to the path forward (eg triggering some capital gains tax on a restructure to achieve better asset protection). 

Taxation

Tax planning is one of the key drivers in an estate and succession plan.  Whether it be the Willmaker’s own tax profile or the marginal tax rate of the individual beneficiaries, estate planners need to be aware of the tax implications of the transfer of assets.  A typical question is whether there will be any capital gains tax applying on the sale of a main residence when an individual passes away.  Another issue that is often missed is capital gains tax being triggered if assets pass to non-Australian residents.  Furthermore, the taxation of income that is generated from inheritance may also be of concern, particularly where a beneficiary in question is a high income earner. 

These issues need to be carefully managed with reference to specific rollover provisions under the tax law and potentially using testamentary trusts which, if properly drafted, should enable the splitting of income including to minor children, to lower the overall tax liability. 

Asset protection

Another important factor in an estate plan is to maintain or achieve asset protection for the intended beneficiaries.  This is an issue that the Willmaker should consider during their lifetime in the structuring of their assets, particularly the ownership of their family home.  For instance, it is common for the less “risky” partner/spouse to own the family home in their personal name to manage any creditor risk.  Another common scenario is where the beneficiary in question has a risky occupation or is going through bankruptcy. 

The Willmaker should factor these issues into their estate planning and perhaps the use of testamentary trusts in the circumstances could better protect the inheritance from creditors and predators. 

Furthermore, the use of protective mechanisms including special disability trusts may also better protect vulnerable beneficiaries and ensure they maintain their Centrelink benefits as much as possible. 

Family provision risk

A family provision claim could have significant costs for the estate and beneficiaries in question and not to mention emotional and mental stress that could tear families apart.  Good estate planning involves anticipating disputes from the outset rather than curing problems later. 

Ownership structure is key in determining whether a beneficiary can make a claim for further provision in Victoria.  For estate planners, this involves considering which assets are “at risk” of being challenged by an aggrieved beneficiary in the future.  Part of the estate planning exercise may be to transfer or restructure ownership to structures which are out of estate challenge reach.  The transaction costs including taxation and transfer duty are also relevant to consider, but may be a small price to pay if a family provision claim is likely on death.

 

Want to know more? Make sure to register for the LIV Academy Series – Estate Planning workshop in the Succession Law stream. Facilitated by Nathan Yii, this workshop will help you improve your understanding of structures such as family discretionary trusts and superannuation funds which need to be considered as part of a succession plan. You will also receive a refresher on best-practice skills for will drafting. Register here.

 


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