Having a valid Will is a fundamental part of your Estate Plan. Before you consider the terms of your Will, it is important to understand:
- what assets you own or are within your control; and
- whether such assets can be distributed in accordance with the terms of your Will and be included in your estate (“estate assets”).
Many people assume that all of their assets (whether in their sole name, jointly held or owned through a company or a trust) will be considered an estate asset. However, your Will can only control assets which you personally own.
Assets held in joint names
If you own an asset (for example, real property, bank accounts or shares) jointly with another person and one of the joint owners die, the ownership of such asset will pass directly to the surviving joint owner. Jointly owned property is often referred to as being held “as joint tenants”. If you own property as joint tenants, all joint owners have an interest in the whole property. Upon the death of an owner, the asset will pass directly to the surviving joint owner. This is called the right of survivorship.
Similarly, any liabilities attached to a property held as joint tenants will pass to the surviving joint owner and become their responsibility.
Property held as joint tenants is not an estate asset and cannot be distributed pursuant to the terms of your Will. Such property will only become an estate asset upon the death of the last surviving joint owner.
Another method of holding property with other co-owners is called “tenancy in common”. Co-owners can hold property as tenants in common in any shares (for example, ½ or ¼). If you own property with another person as tenants in common, each co-owner owns their own distinctive share in the property. Each person’s share in such property will be an estate asset and can be gifted in accordance with the terms of their Will.
Superannuation is not automatically an estate asset.
Upon your death, your Superannuation Fund must consider whether there is a valid Binding Death Benefit Nomination (BDBN) in place. This is written direction to your Superannuation Fund, nominating certain beneficiaries to receive your superannuation benefits. A BDBN can only be made in favour of a:
- a person with whom you have an interdependency relationship; or
- legal personal representative (the Executor or Administrator for your estate).
Generally, a BDBN will need to be renewed every three (3) years. However, this may not apply to Self-Managed Superannuation Funds.
If a valid BDBN is in place, the Superannuation Fund must follow this written direction and pay your superannuation benefits to the beneficiaries named in this document.
The beneficiaries named in your BDBN may be different to the beneficiaries named in your Will.
If there is no valid BDBN, the Trustee of your Superannuation Fund will make the final decision with respect to who will receive your superannuation benefits. In these circumstances, the Trustee of your Superannuation Fund will consider:
- the beneficiaries named in any non-binding nominations;
- whether you have a surviving spouse, children or dependents;
- whether you have a valid Will and the beneficiaries named in your Will.
Your superannuation benefits will only be distributed in accordance with the terms of your Will if:
- a valid BDBN is in place nominating your legal personal representative (this effectively directs the Superannuation Fund to pay your superannuation into your estate); or
- in the absence of a valid BDBN, the Trustee of your Superannuation Fund makes a decision to pay your benefits to your legal personal representative.
The benefits payable pursuant to a Life Insurance Policy will be paid to the beneficiary named in the Policy document. The beneficiary named in this document may be different to the beneficiaries named in your Will.
If you want the Life Insurance proceeds to be distributed to beneficiaries named in your Will, you should ensure that your Policy document nominates your legal personal representative to receive these proceeds.
A Trust (whether fixed or discretionary in nature) is a relationship recognised by law that involves one person (the Trustee) holding assets for the benefit of another person or persons (the Beneficiaries). A Trust may be created by a written instrument (for example, a Deed), in a Will (known as a testamentary trust), or by conduct (for example, resulting or constructive trusts).
Assets held by a Trustee may only be dealt with and distributed pursuant to the terms of the Trust Deed (the document which governs the Trust).
Although you may have control of the Trust (in your capacity as the Trustee, Appointor or Principal), the assets owned by the Trust are not assets which personally belong to you and as such, cannot be dealt with in your Will.
However, upon your death, your nominated legal personal representative can act in your role as the Trustee, Appointor or Principal of the Trust. If your legal personal representative acts in such a capacity, they must deal with the Trust assets in accordance with the terms of the Trust Deed. The beneficiaries named in the Trust Deed may be different to the beneficiaries named in your Will.
Assets owned by a Company
A company is a separate legal entity. Assets owned by a company controlled by you (in your capacity as a Director) cannot be distributed pursuant to the terms of your Will. The assets of a company are owned by the shareholders of the company in accordance with their shareholdings and the terms of the company constitution.
If you personally own shares in a company (in your individual name), then such shares are an estate asset and will be dealt with in accordance with the terms of your Will.
Your Estate Plan may consist of more than a Will
Your Will is not the only document which will determine what happens to your assets upon your death. As part of the estate planning process, you should consider:
- What assets can be distributed pursuant to the terms of your Will?
- What assets do not form part of your estate and will be dealt with outside of your Will?
- Who are your intended beneficiaries for both your estate assets and the assets which do not form part of your estate?
- Do you need to take any steps (apart from making a Will) to ensure that all of the assets you have an interest in are dealt with in accordance with your wishes?
- Do you need to structure or change the ownership of your assets to ensure that they are distributed to your intended beneficiaries?