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So what is Family Succession Planning? It involves having the right financial structures and arrangements in place to protect a your interests in the most tax effective way possible. It is important to ensure that the right assets will be there, that they end up with the right people and it is equally important to ensure they get to the beneficiary at the right time. The appropriate amount of funds or assets will vary considerably from individual to individual. There are the obvious needs for immediate cash, education expenses and so on. Ensuring there are sufficient funds to meet special needs (eg. child ’ s wedding, tax liabilities, funeral expenses, etc) and to cancel all debts. There may be timing issues that are specific to a particular person. For example - situation where a couple have a teenage son studying at university. If, due to a family tragedy, his full inheritance were to pass to him immediately, would he still be motivated to continue his studies? A simple trust could be created through the will providing him with a reasonable income, but keeping the capital intact until, say, age 25.
Not leaving a Will - only 55% of Australians have planned ahead and yet a Will is the most powerful estate planning tool of all! For all those who die intestate (i.e. without a will) their estate will be distributed according to strict State laws rather than according to their wishes. Not providing for your dependants - Family Provision legislation differs between States and Territories – but in all locations it protects dependants by conferring powers on the Court to make provisions out of a deceased’s estate in favour of eligible persons where provision for those persons is considered inadequate. An otherwise valid Will can be subject to alternative orders of the Supreme Court designed to correct a ‘lack of provision’. **ACTION – if you intend to leave someone out of your Will, you should obtain professional advice Being ambiguous - see next slide for fictitious example ,
If you do not express your wishes clearly, you could be leaving your estate open to dispute – this is a very common mistake! ** ACTION – it is best to have your Will drafted by a Professional
Not specifying debts to be paid – if you do not specify that debts are to be paid prior to the distribution of your assets, some of your beneficiaries may become liable for outstanding debts. e.g. – two children each inherit from their father investments valued at $350,000 but one of the investments has a loan secured against it of $75,000, leaving its net value at only $275,000. Not taking tax into account – a) often the potential capital gains tax liability is either unknown or even forgotten! e.g. - a mother leaves one child the family home while the other child is left the holiday home. While both are worth a similar amount, the holiday home is subject to capital gains tax upon sale while the family home is exempt thus making the distribution of assets inequitable. b) only those persons who qualify as a “death benefits dependant” of the deceased are able to receive a lump sum death benefit tax-free. Writing an ‘informal’ Will – writing a list or letter instructing how you want your assets to be distributed can create extra delays, anxiety and expense as likely to require ongoing updating to cover changing circumstances.
Not nominating guardians – if you have a spouse or adult child who requires constant care because they are incapacitated or simply children who are minors, you should nominate a Guardian to provide for their care should anything happen to you. If you do not nominate a Guardian it will most likely be left to the Courts to decide who will look after your children or spouse. Some states may provide for powers of attorney to deal with medical issues although not as broad as an enduring guardian Bequeathing assets not ‘owned’ by will maker (testator) – generally assets that are controlled but not owned by the will maker are referred to as ‘non-estate’ assets. These assets cannot be disposed of by a Will. Many people are surprised to learn that their Will does not necessarily direct what happens to their superannuation on death. When someone dies, the Trustee of their super fund will usually be responsible for determining who of their dependants or legal representative will receive their death benefit. Assuming your super will bypass your estate – stating how you want your superannuation (and any associated insurance death benefits) dealt with is an important matter. The Trustee may elect to pay your super benefits directly to your dependants in preference to passing it to your estate. You may also consider taking benefits in form of an income stream rather than a lump sum to avoid work test rules post age 65 & contributions caps. This could mean advantages for children. **ACTION - any nomination given to your fund trustee should be reviewed and consideration given to making a ‘ Binding Nomination ” . However, many Industry and Public offer superannuation funds do not currently offer the facility to make a binding nomination.
Using beneficiaries as witnesses – if a beneficiary or their spouse witness the execution of the Will, a gift to that witness is void (except in ACT, South Australia & Victoria) unless all the beneficiaries give consent to the distribution of the gift Appointing a beneficiary as executor – often a family member is appointed as executor as well being a primary beneficiary which unfortunately can often lead to conflict of interest issues. It is important to avoid appointing someone as executor who might have a conflict of interest – for instance a business partner who may wish to buy your share of a business. ** ACTION – ensure your appointed executor has the capacity and the time to carry out the duties expected of this role. A good test is to ask yourself whether you would trust this person to run your financial affairs. Not granting adequate power to executors – make sure you give your executor sufficient power to carry out your wishes – for instance the authority to sell assets or make investment decisions on behalf of minors. If not, your executor may need to apply to the Courts for approval to take fairly commonsense actions – such applications are potentially costly.
Not communicating with your executors and beneficiaries – Executors – ensure they are aware of where your Will is stored Beneficiaries – don’t leave them with unexpected ‘surprises’ (or disappointments!) in your Will – communicate your wishes personally. Not making provision for a residue – quite often the size of your estate will grow in time after the Will is prepared. If your bequests are made in specific dollar amounts you should provide directions (in your Will) as to how any remainder balance or residue is to be distributed. If such directions are not provided, the residue will fall into intestacy and the relevant State laws will determine who benefits from the remainder balance. Not keeping your Will up-to-date - It is important to be UP-TO-DATE because … Estate Assets and Non-Estate Assets change , families and family dynamics change , needs and responsibilities change , laws change and of course your goals and objectives change
Peter Brock – a “big picture” man liked to take care of the fun things in his life like motor racing and the sponsorship deals. However when it came to the paperwork he left it to others or hoped it would take care of itself. Beverley Brock (referred to as his wife but the couple were never married) – told the Victorian Supreme Court that “ he (Peter) expressed the view that as he would not be around after he died, he had nothing to worry about” (extract from a story in The Daily Telegraph)
Three wills a 2006 Will that was half finished and unsigned, a 2003 “do-it-yourself” Will that was signed and witnessed but with spaces left for his wife to complete after his death, a 1984 solicitor’s Will that included his parents as beneficiaries.
Tax liability – refer next slide for taxation considerations
Binding v non-binding death benefit nominations Binding nomination - instruction by super fund member for which the super fund trustee must comply with unless the nomination is invalid. As such it provides reasonable certainty that the member’s intentions are carried out after their death. Non binding nomination - simply an indication of the member’s wishes to the trustee. The trustee is not bound by this nomination and can exercise its discretion when deciding to whom the member’s death benefit will be paid.
It ’ s all about ensuring the appropriate funds are where you want them and when you want them there. The right funds - means having sufficient money or assets to cover such things as lifestyle maintenance, children ’ s education, debt cancellation, cover CGT liability. If you don ’ t have enough assets, you can create money via insurance as per previous slide. In the right hands - means ensuring these funds go to your partner or spouse, your children, your grandchildren, perhaps charities and not creditors, the taxman, estranged spouse, etc. Be aware of taxation implications. At the right time - means the funds are transferred at a time when they are needed most - maybe for immediate cash needs or to cover a child ’ s education needs at some point in time. The appropriate amount of funds or assets will vary considerably from individual to individual. It means ensuring that there is sufficient money and/or assets to maintain your family ’ s lifestyle should you die. This is particularly important if you are the main breadwinner (eg. to cover children ’ s education, household maintenance, mortgage, emergencies). Ensuring there are sufficient funds to meet special needs (eg. child ’ s wedding, tax liabilities, funeral expenses, etc) and to cancel all debts. It is important to ensure that the right funds will be there - it is important they end up in the right hands - it is equally important to ensure they get there at the right time. There are the obvious needs for immediate cash, education expenses and so on. There may also be timing issues.
So the next step is up to you. If you have some concerns or questions about your current arrangements, you should seek advice now. Failing to plan could have far reaching consequences for your family as we have seen in the examples shown today - a situation that could easily be avoided if an effective family succession plan is in place.
15 Estate Planning Mistakes 26032011
Family succession planning: common 15 mistakes Matthew Dunstone Matthew Dunstone is an Authorised Representative of RI Advice Group Pty Ltd
Disclaimer <ul><li>Important Notice </li></ul>RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429 and is licensed to provide financial product advice and deal in financial products such as: deposit and payment products, derivatives, life products, managed investment schemes including investor directed portfolio services, securities, superannuation, Retirement Savings Accounts. The information presented in this seminar is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. RI Advice Group strongly suggests that no person should act specifically on the basis of the information contained herein but should obtain appropriate professional advice based on their own circumstances.
RI Advice Group: our credentials <ul><li>Experienced </li></ul><ul><ul><li>Over 30 years experience </li></ul></ul><ul><ul><li>Over 80,000 clients </li></ul></ul><ul><ul><li>Over $10b under advice </li></ul></ul><ul><li>Professional personal advice </li></ul><ul><li>Advice underpinned by quality research and technical teams </li></ul><ul><li>Over 110 offices nationwide </li></ul><ul><li>Global company </li></ul>
Agenda <ul><li>What is Family Succession Planning ? </li></ul><ul><li>15 most common mistakes - Family Succession Planning </li></ul><ul><li>What can go wrong ? - Peter Brock ‘s legacy </li></ul><ul><li>The cost of getting it wrong </li></ul><ul><li>Taxation considerations </li></ul><ul><li>Other important considerations </li></ul><ul><li>Our Family Succession Planning service </li></ul>
What Is Family Succession Planning? <ul><li>Ensuring that, no matter when: </li></ul><ul><li>… the right assets (in quantum and form) ... </li></ul><ul><li>… go to the right people (where and to whom)… </li></ul><ul><li>... at the right time … </li></ul><ul><li>… in the right manner (i.e. free from disputes)… </li></ul><ul><li>… net of the right tax (as little as possible). </li></ul>
15 most common mistakes – Family Succession Planning <ul><li>Not leaving a Will </li></ul><ul><ul><li>45% of Australians die without a Will * </li></ul></ul><ul><li>Not providing for your dependants </li></ul><ul><ul><li>- dependants not ‘adequately provided for’ from your estate may contest your Will </li></ul></ul><ul><li>Being ambiguous </li></ul><ul><li>* Australian Bureau of Statistics </li></ul>
15 common mistakes… FIVE THOUSAND DOLLARS ($25,000) to the sons of my husband’s brother whose name I believe is XXXX, my husband having lived in the town of XXXX Germany. An ambiguous Will
15 common mistakes… <ul><li>4. Not specifying debts to be paid </li></ul><ul><li>5. Not taking tax into account </li></ul><ul><li>- capital gains tax </li></ul><ul><li>- tax on superannuation benefits paid to non-dependants </li></ul><ul><li>6. Writing an ‘informal’ Will </li></ul>
<ul><li>7. Not nominating Guardians </li></ul><ul><li>8. Bequeathing assets you don’t ‘own’ </li></ul><ul><li>- jointly owned assets </li></ul><ul><li>- property held in trust, </li></ul><ul><li> - business partnership property, </li></ul><ul><li>- proceeds of life insurance policies, </li></ul><ul><li> - your superannuation </li></ul><ul><li>9. Assuming your super will bypass your estate </li></ul>15 common mistakes…
15 common mistakes… <ul><li>10. Using beneficiaries as witnesses </li></ul><ul><li>- avoid having beneficiaries or their spouses witness your Will </li></ul><ul><li>11. Appointing a beneficiary as executor </li></ul><ul><li>12. Not granting adequate power to executors </li></ul>
15 common mistakes… <ul><li>13. Not communicating with your executors and beneficiaries </li></ul><ul><li>14. Not making provision for a residue </li></ul><ul><li>15. Not keeping your Will up-to-date </li></ul><ul><ul><li>estate assets and non-estate assets change </li></ul></ul><ul><ul><li>families and family dynamics change </li></ul></ul><ul><ul><li>needs and responsibilities change </li></ul></ul><ul><ul><li>laws change </li></ul></ul><ul><ul><li>goals and objectives change </li></ul></ul>
What can go wrong ? <ul><li>Peter Brock’s legacy: a ‘Panorama of chaos’ </li></ul><ul><li>During his racing career Peter Brock was firmly in control as his many victories clearly demonstrated </li></ul><ul><li>But ……upon his death (September 2006), his family found that he had lost control of his personal financial affairs </li></ul>
What can go wrong ? <ul><li>Peter Brock’s legacy: a ‘Panorama of chaos’ </li></ul><ul><li>He lived a complicated personal life </li></ul><ul><li>He left a complicated estate with no clear, unambiguous will – he in fact left three Wills! </li></ul><ul><li>Led to Supreme Court proceedings at great financial and emotional expense to his family </li></ul>
The cost of getting it wrong <ul><li>Family disputes </li></ul><ul><li>Legal fees </li></ul><ul><li>Delayed distribution </li></ul><ul><li>Unhappy beneficiaries </li></ul><ul><li>Tax liability </li></ul>
Taxation considerations <ul><li>Keep accurate records </li></ul><ul><li>Offset capital gains against losses </li></ul><ul><li>Bequeath CGT assets to low marginal tax beneficiaries </li></ul><ul><li>Consider use of testamentary trusts </li></ul><ul><li>Specify donations to be net of tax - or to go to an approved foundation or registered charity </li></ul><ul><li>CGT implications for non resident beneficiaries </li></ul>
<ul><li>Whilst only 55% of us have Wills, a far lesser portion have Wills that are as effective as they could be. For instance ... </li></ul><ul><li>Blended Families </li></ul><ul><li>You should consider trusts as they can provide for your: </li></ul><ul><ul><li>children </li></ul></ul><ul><ul><li>new partner </li></ul></ul><ul><ul><li>non-blood children </li></ul></ul><ul><ul><li>the ‘ex’ spouse/partner </li></ul></ul>Other important considerations
<ul><li>Superannuation </li></ul><ul><li>Death Benefit Nominations </li></ul><ul><ul><li>may also be used to direct your superannuation monies appropriately </li></ul></ul><ul><ul><li>binding v non-binding nominations </li></ul></ul>Other important considerations
Our Family Succession Planning service <ul><li>Protect your loved ones with a plan with: </li></ul><ul><li>the right funds for lifestyle maintenance, children’s education, debt cancellation </li></ul><ul><li>in the right hands - partner / spouse, children, grandchildren, charities, minimise tax </li></ul><ul><li>at the right time – a mix of immediate, medium and long term needs </li></ul>
Our Family Succession Planning service <ul><li>Part of a comprehensive review of your financial situation: </li></ul><ul><ul><ul><li>now </li></ul></ul></ul><ul><ul><ul><li>and your family’s future </li></ul></ul></ul><ul><li>We work with a panel of lawyers who are specialists in the field of family succession planning </li></ul><ul><li>** ADD TO or AMEND THIS SLIDE as appropriate for our service </li></ul>
Our Family Succession Planning service <ul><li>Questions? </li></ul>
Thank you for attending Matt Dunstone - General Manager RI Surrey Hills 400 Canterbury Road, Surrey Hills 9836 4744