May 1, 2022 | Family Law, Wills and Estates
Families and money can sometimes be a volatile combination. In circumstances where a divorce or separation occurs and a new will isn’t drafted, complications can arise. In this blog, we review what it means to have an inheritance included in the asset pool of a separating couple.
Why is inheritance an asset?
When a separating couple needs to divide their assets, they must first work out what assets are available to be pooled and distributed. This pool includes all the assets and liabilities in each person’s name and in the parties’ joint names, as well as each person’s share of an asset owned jointly with another person.
If one person received an inheritance before or during the relationship, that inheritance would normally form part of the pool of assets available for distribution.
Does that mean my partner gets half my inheritance?
No, not necessarily. Just because an asset is included in the pool of assets available for distribution does not mean that the asset or the whole pool will be divided 50/50. Each matter is considered on a case-by-case basis.
Importantly, once the parties have identified what is in the pool of net assets, they must then consider what contributions they each made to the relationship and its assets, and their respective future needs, in order to determine their respective entitlements and how the assets will be divided.
What are contributions?
When working out which party made what contribution, the Family Court considers the parties’ financial contributions – i.e. who earned what, the lump sums expended during the relationship, who bought what and who paid for what – and also non-financial contributions – such as being a homemaker and parent, physically renovating a home or landscaping a garden, managing the parties’ financial affairs and so on.
After a long relationship where there haven’t been any significant inheritances or other financial windfalls, a court will usually find that financial and non-financial contributions during the relationship are roughly equal, unless special circumstances apply.
An inheritance received by one party before the commencement of the relationship would be treated as an initial financial contribution by that person – money or assets that person brought into the relationship. Similarly, an inheritance received by one partner during the relationship is usually considered to be a financial contribution by that person. In these circumstances, depending on factors such as the size of the inheritance, when it was received, what it was used for and the parties’ other contributions, this would generally mean that the person who received the inheritance would be treated as having made greater contributions to that asset during the relationship.
What about an inheritance received after separation?
This situation is less clear cut. A court usually considers an inheritance by one party as a sole contribution by that person. Generally, this will mean that the other party did not contribute to the post-separation inheritance and it should not be included in the pool of assets to be divided. However, each matter is dealt with on a case-by- case basis and while this may be a potential result, it is always dependent on the facts of the case and the circumstances of the lead up to the inheritance.
For example, if the post-separation inheritance had been received from the husband’s mother and the wife had a close relationship with her mother-in-law and had cared for her during an illness, a court might find that both parties had contributed to the receipt of the inheritance and therefore both parties will be entitled to a share of the inheritance.
Future needs
After working out financial and non-financial contributions, the future needs of the parties are assessed before determining a split of the net assets and whether any adjustments should be made in favour of the party in need. Future needs include things like income, earning capacity, financial resources, ongoing care of children, age, and health.
An inheritance, even one received after separation, may be taken into account in this final step. The reason for this is the recipient of the inheritance would have greater financial resources and may be receiving income from an inherited investment which may well mean that that person’s future financial circumstances may significantly outweigh the other person. In such a case, a court may rebalance the division of the net asset pool in favour of the other partner by way of an adjustment which is derived from section 75(2) of the Family Law Act (Cth).
Summary
An inheritance received before or during a relationship will almost always be treated as an asset available for distribution between separating parties, whereas an inheritance received after separation will usually be found not to fall into the main pool of assets but may be treated in a separate pool.
The receipt of a large inheritance will have a significant impact towards the determination of contribution of the parties. In addition, an inheritance, including one received after separation, could have an impact on the determination of future needs of the parties and whether any adjustments ought to be made.
Finally, once the parties have been assessed as to the net assets, what contributions were made, whether there are future needs, a court is then required to determine whether the proposed split of net assets is just and equitable.
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Contact us
The Family Law team at Etheringtons Solicitors are skilled at handling all matters relating to inheritances and are able to assist with complex cases in the event of a relationship breakdown. If you need assistance with any area of Family Law, do not hesitate to contact us on 9963 9800 or via our contact form here.
Apr 20, 2022 | Family Law, Wills and Estates
Making a will is important for everyone over the age of 18, to ensure their wishes are followed and their assets are distributed correctly after they die.
If you don’t have a will your assets will be divided according to how the law dictates in the rules of intestacy. A will is also the place where you can indicate to your family and friends your wishes on other important matters, such as who you want to be the guardians of your children.
Regularly review your will
Preparing a will is not a once-off event. It is sensible to review your will regularly, and we suggest that this be done a minimum of every three to five years.
Changes in your life may create difficulties in interpreting an earlier will. In certain circumstances, major changes can make your will ineffective or invalid. It is likely that your needs and circumstances will change many times in the course of your life and with those changes it is prudent to consider how they impact upon your will.
Healthy Will checklist
Here is a checklist of life changes which can impact on the validity of your will and which you need to consider in examining the legal health of your existing will.
- Have you married? Or separated from your partner? Have you had any children?
- Is the person you named as executor (to carry out the wishes in your will) still alive and well enough to do the job?
- Have the circumstances of any beneficiaries changed to make you reconsider your wishes, or have any of them died?
- Have you nominated any specific gifts that are no longer valid or don’t exist? For example, have you sold a property that you had left to someone in the will?
- Have you acquired any new assets that you would want to make specific plans for in your will?
Superannuation
At the same time as you check the health of your will, it is also a good idea to check your super and life insurance.
Many people assume their superannuation will be divided up in accordance with the wishes in their will, but that is not necessarily the case. You need to look at your super policy to check how you have nominated that your super should be allocated, and that it is still allocated in the way you want. Sometimes, a nominated beneficiary direction will lapse after three years.
At the same time, check the division of any life insurance you have in your policy, and update it if necessary.
Conclusion
The important thing is to consider your circumstances at every major personal milestone in your life.
Any Will you have made is likely to become out of date and no longer accurately represent your wishes in some way following changes in your life, possibly within a few years of drawing it up. It will depend on circumstances that are unique to you.
If you would like to discuss a new Will or changes in your circumstances and a review of your current Will please call us on (02) 9963 9800 or via our contact form.
Apr 17, 2022 | Wills and Estates
The loss of a family member is always a difficult time, and it can be distressing to learn that you have not been included in the family member’s will. Generally, a person may leave their assets to whomever they wish. However, the law recognises that there are may be people who have relied on the deceased for support, who can sometimes be unfairly left out of the will. Such people are able to make a claim so that their needs are adequately provided for.
How do I challenge the deceased’s will?
There are two main grounds for challenging the deceased’s will or contesting the estate. These are:
- Challenging the validity of the will – this may be on the basis that the will maker did not have the legal capacity to make the will, or didn’t understand what they were signing; or
- A claim can be made under the Succession Act 2006 (NSW) on the basis that the will maker failed to provide for a family member where they had a moral obligation to do so.
Can anyone challenge a will?
Under the Succession Act, only persons who qualify as eligible persons under the Act may apply to the court. There are seven categories of eligible persons, namely:
- The wife or husband of the deceased when they died;
- A person in a de facto relationship with the deceased when they died (including same sex partners);
- A child of the deceased;
- Former wives and husbands of the deceased or former de facto partners of the deceased, who were receiving or were entitled to receive maintenance from the deceased when they died;
- A grandchild of the deceased, in certain circumstances;
- A step-child of the deceased in certain circumstances; and
- A parent of the deceased.
To show that you are entitled to receive some benefit from the estate you must show that the deceased had an obligation to provide for you and that you have been left without adequate provision for your proper maintenance, education or advancement in life. It is important to note that inheritance claims are subject to a strict time limit, which is 12 months after the date of death.
You may not need to go to court as most parties are encouraged to resolve their claims by mediation to avoid legal costs or any lengthy delays.
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Get legal advice
If you are concerned, please be sure to contact us as soon as possible or you may be prevented from making a claim. It is usually a good idea to try and get a copy of the last will of the deceased so that you can discuss the details with us more accurately. If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or contact us via our form, here. If you would like to prepare your will with us, please fill out the Will Instruction Form and we will contact you.
Apr 1, 2022 | Wills and Estates
An estate plan involves more than just preparing and signing a will. Estate planning requires a holistic approach in considering a person’s present circumstances and foreseeable future. A plan needs to consider your existing property, future property, and your final wishes. Your lawyer’s role is to document these wishes to ensure they are legally enforceable and can be carried out when you pass. This article considers what an effective estate plan involves and explores some key considerations you should contemplate when preparing an estate plan.
What is effective estate planning?
An ideal estate plan will:
- Appoint a trusted person or persons (attorney / guardian) to manage your affairs both financially and personally if you are incapacitated; and a legal personal representative (executor / trustee) to administer your estate (and associated trusts) after you pass
- Nominate your intended beneficiaries with certainty or provide for a class of beneficiaries to ensure that your assets pass only to those you intend to benefit.
- Prevent uncertainty, undue stress and expense by reducing the likelihood of a family provision claim which involves a challenge to your Will that can undermine your wishes.
- Safeguard your assets from unintentional distribution to estranged partners or creditors of insolvent / bankrupt beneficiaries and protect vulnerable beneficiaries such as those with a disability, drug, alcohol or gambling problem.
- Provide flexibility in distributing assets in anticipation of the present and future needs of beneficiaries. Maximise the value of your estate through effective tax planning to minimise capital gains, and income tax payable by beneficiaries on their inheritance.
- If relevant, provide for effective business succession or the winding up of a business.
What are some considerations in estate planning?
Family structure
Every family is different and there is no one-fits all solution for all. You should start with an overview of your family circumstances and a list of all family members, whether or not you would like them to benefit from your estate.
Acknowledging where there is conflict between family members and identifying any eligible persons who might claim on your estate will assist in devising strategies to reduce the potential for future claims. Blended families are common and require special attention as there may be competing interests between past and present partners, and biological children and step-children.
Choosing your executor and trustee
The executor and trustee will be your personal legal representative who will administer your wishes when you have passed, so the person filling this role should be chosen with care. For simple estates, a spouse or child / children (or combination) are usually appropriate choices to oversee the administration and finalisation of the estate.
For more complex estates, with business interests or which will have ongoing trusts, it may be preferable to appoint a professional with expertise in this area. Similarly, if there is conflict within the family a neutral executor may be more appropriate to ensure that the role is carried out with impartiality.
Powers of attorney, guardianship and advance care directives
New South Wales allows for the appointment of an attorney, guardian or decision-maker to manage your financial, legal and / or personal affairs for a defined or ongoing period and to make health-related decisions if you are incapacitated. A power of attorney relates to financial decisions and guardianship relates to health and lifestyle decisions.
These documents provide for flexibility in choosing the type of functions to be carried out, and the duration for which the authority is given. Powers of attorney can be made enduring so that a person can manage your affairs indefinitely if you lack decision-making capacity.
These documents form an important part of your overall estate plan by ensuring the ongoing management of your affairs by a trusted person if you are incapable.
Your assets
A detailed list of assets and liabilities will assist in determining the overall value of the estate, how and when assets should be distributed, the appropriate structure of the Will and whether a testamentary trust would be beneficial (see below).
You will need a precise description of the assets, their location, whether they are held individually or jointly and their value. Whether certain assets are encumbered will also be a relevant consideration. If you are including specific gifts, such as items of sentimental value, antiques or artworks, these should be clearly identifiable and described in the Will.
Remember, your assets are likely to change over time and this needs to be factored into your estate plan. A gift of a specific asset of considerable value which is disposed of before your passing will fail in the execution of your estate, and may cause an unintentionally unequal distribution amongst beneficiaries.
Using a testamentary trust
In many cases, it will be advantageous for a will to establish a testamentary discretionary trust. This is a trust that comes into effect after the will-maker passes. Administration of the trust is carried on by a trustee pre-appointed by the will-maker. The trustee determines how and when estate assets are managed and distributed.
If properly managed, the flexibility of a discretionary trust allows beneficiaries to access favourable taxation treatment with respect to their inheritance and provides protection for at-risk or vulnerable beneficiaries from claims by creditors or ex-partners. With careful planning, the timing of transferring estate assets can postpone or minimise capital gains tax liabilities.
Even modest estates may benefit from having a testamentary trust, particularly where the will-maker is part of a blended family. The trust can allow the Will-maker to provide immediate benefits for a current partner (such as a right of residence and income), whilst preserving assets for residual beneficiaries, such as the children.
Trusts can also include separate suites of provisions to apply depending on whether the current partner survives or pre-deceases the will-maker.
Your superannuation
Superannuation does not automatically form part of your estate assets. Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).
Most funds allow members to nominate their intended beneficiaries through a BDBN. This process forms an important part of estate planning – without a valid BDBN, the beneficiaries are decided by the trustee in accordance with the terms of the trust deed and the relevant legislation. This decision may not reflect what the will-maker intended. A BDBN may not last and needs to be updated every few years to remain valid.
Consideration of the way death benefits are taxed in the hands of the recipients is also an important issue. A spouse or partner will be considered a tax-dependent under taxation law and accordingly will receive death benefits tax free. Alternatively, whilst adult children are considered dependents under superannuation legislation, they are not ‘tax-dependents’ and will need to pay tax on any death benefits.
Business succession
If you are carrying on a business, whether as a sole trader, partnership or through a company, you will need to think about how you would like these interests dealt with after you pass. If you are a sole trader, you may include terms in the will for the continuation of the business by your partner, children, friend or trustee. If you conduct the business as a sole director through a corporate entity, you will need to consider who will take your place as shareholder and managing director. Alternatively, you may wish for the business to be wound up.
Some partnerships will have buy-sell insurance in place. This is a policy allowing a surviving partner to acquire the deceased partner’s shares so the business can continue. Generally, the surviving partner or partners receive lump sum funding to purchase the deceased partner’s shares from the estate. Business succession planning requires consideration of the intended beneficiaries and whether they have the desire, skill and competence to continue managing the business.
Get legal advice
Effective estate planning takes time and careful contemplation. Your estate plan will usually comprise various documents to ensure the effective management and finalisation of your affairs so that your life’s efforts reward those you intend to benefit.
Etheringtons Solicitors are skilled in estate law and are ready and willing to assist you with your enquiry. If you would like further information, please do not hesitate to contact one of our experienced solicitors on (02) 9963 9800 or via our contact form. For more articles, please see our blog here.
Mar 24, 2022 | Employment Law, Wills and Estates
Superannuation is a large component of building long-term wealth and retirement planning. Self-managed super funds are becoming increasingly popular as the investment structure for those who prefer greater autonomy and control over how their funds are being invested and accumulated. However, whilst self-managed super funds can be effective for building wealth and minimising tax burdens, they must be properly executed and managed in order to protect you and your family’s interests. Etheringtons Solicitors have a team of experienced solicitors who can assist you in a range of wealth management matters in a strategic and compassionate manner.
What is a self-managed super fund?
A self-managed super fund (“SMSF”) is a private superannuation fund where the members are usually the trustees. Members of the SMSF run it for their benefit and are responsible for complying with the relevant laws. A SMSF can have up to four members, but it is quite common for there to be just one member.
A SMSF trustee is the person responsible for ensuring the SMSF is maintained for the purpose of providing retirement benefits. The trustee can be a company or an individual. For a single member SMSF, there must be two individual trustees, the other trustee must either be related to the member or be another person who is not an employer of the member.
What are benefits in establishing a self-managed super fund?
1. Control and Choice of Investment
The primary benefit of a SMSF is the control and choice you have over how the funds are invested. For example, SMSF’s can invest in commercial properties, term deposits, shares and derivatives. SMSF’s are recommended for small business owners as the fund can receive steady income from the SMSF when the business property owned by the SMSF is leased back to the business.
2. Tax Minimisation
SMSFs grant greater flexibility than other superannuation structures to minimise overall tax payments. If you are a SMSF trustee, you are entitled to the reduced superannuation tax rate. Provided the SMSF complies with legislation, your investment return would therefore be taxed at a maximum of 15% in Australia.
The tax-free benefits are highly attractive. Benefits received after the age of 60 and pension payments received from the fund are tax-free.
We highly recommend that you seek advice in relation to SMSFs as they may also be utilised for tax strategies around capital gains and franking credits.
3. Life Insurance
The following forms of personal insurance can be paid through a SMSF:
- Life Insurance;
- Total and Permanent Disability Insurance; and
- Income Protection Insurance.
Life policies are often held in SMSFs because the funding of premiums can become tax deductible if certain contributions are allocated to fund the premiums. The level of cover and insurance needs are unique to each individual. Professional advice must be sought prior to taking out a life insurance policy through a SMSF.
Whilst there are clear benefits to having a SMSF, there are important factors to consider when deciding if it is the appropriate wealth building strategy for you.
Important Considerations
1. Time and effort of managing a SMSF
SMSFs require the trustee to take responsibility for all investment decisions, unlike an industry or retail fund. A sound understanding of investment options and markets is required to be a trustee of an SMSF. Poor decisions will impact the assets of the fund and the retirement savings of its members.
Furthermore, trustees are responsible for ensuring that their fund complies with legislation. If the ATO rules that there has been a breach of these obligations, it may impose high penalties on trustees who will be personally liable.
2. Cost of running a SMSF
The costs of running a SMSF are fixed and therefore can be disadvantageous when the assets held within the SMSF are low in value. The costs reduce in proportion to the value of the fund, and it is advised that the fund should contain at least $250,000 worth of assets to ensure the costs of running the SMSF are worthwhile.
3. Estate Planning
The superannuation benefits of a SMSF are not assets that automatically fall within the ownership of a person’s estate upon their passing. Allocation of benefits is decided by the trustee unless written direction is provided. Without careful consideration and planning, your superannuation funds may not end up where you want them to after your death.
You may properly document where superannuation benefits are to be directed upon the death of a beneficiary through a binding death nomination. A binding death nomination must be renewed every 3 years while a death benefit agreement is permanent until revoked, unless it is a non-lapsing nomination.
Contact Etheringtons Solicitors
Wealth management and estate planning takes careful contemplation. If you or someone you know requires more information or needs advice in relation to self-managed super funds, please contact us on (02) 9963 9800 or via our contact form.
Dec 1, 2014 | Wills and Estates
In a recent Supreme Court case, a grandchild challenged his grandfather’s Will. It was considered good law and is still considered good law, that a grandchild can challenge a Will if they have been left out and the estate has not provided for the grandchild’s “proper maintenance, education or advancement in life”.
In this recent case, the Court ruled that the facts of the particular case meant that such an order was inappropriate and therefore the application by the grandson against his grandfather’s Will was dismissed. The case involved a former private school boy who a Supreme Court judge described as having “an unhealthy sense of entitlement”. The Court went on to conclude that the grandson was not “sufficiently motivated to find work” and had an “unhealthy sense of entitlement which may have constrained his ambition” to achieve independent financial success.
The Court essentially concluded that the community’s standards and expectations did not require it to intervene in the Will to intervene and to give the grandson a greater sum of the estate than had been originally provided for by the grandfather. At the conclusion of the trial, after the grandson had failed, costs were ordered against him and it was a thoroughly unsuccessful application which justified the executor resisting the application of the grandson to vary the Will of the grandfather.
Therefore, although there is a perception that Wills can sometimes be easily challenged, there are situations where the Court will not intervene to assist an aggrieved beneficiary who thought that he or she should have received more or even should have been included in a Will when they were excluded.
It is always advisable to obtain very good legal advice when you feel that your Will is likely to be challenged after you have passed away. There are steps you can take to minimise that risk.
