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Estate Planning Vehicles


There are some vehicles under which assets can be held which give greater flexibility in the ability to pass assets to beneficiaries. Some of these are:



• Joint tenancies: Where, on the death of one of the joint tenants, that person’s interest passes to the surviving joint tenant(s). The property does not form part of a person’s estate to be dealt with in their Will.


• Trusts: These can be in the form of a family discretionary trust or a unit trust created by the Testator during his lifetime, and which is governed by the terms of a trust deed. Assets are transferred into the Trust and capital and income are distributed to named beneficiaries of the Trust at the discretion of the trustee of the trust. However, in situations where the vast majority of a testator’s wealth is held by the trustee of a discretionary trust, the beneficiaries under the estate may be disappointed to find that they have been left virtually nothing under a Will, and that they are at the whim of directors of a trustee company to determine what they might receive.


• Direct gifts to beneficiaries: One factor against the decision to gift assets during a person’s lifetime is the less generous tax treatment of such non-testamentary gifts. For example, real estate valued at $500,000 can be transferred to a beneficiary under a Will on payment of $10 stamp duty, but if the same property is transferred from one living person to another, then the stamp duty payable on that transfer would be $17,990.00. In addition, a gift that is made during one’s lifetime is not revocable. The provisions of a Will, by contrast, may be amended at any time before death. Also, the anti-avoidance provisions of social security law (relating to  the assets test) mean that if eligibility for social security entitlements is the motivation for such gifts, they may not be effective to achieve the desired result.


• Testamentary trusts: Virtually all Wills create testamentary trusts. Once the Executor has performed the function of paying the deceased’s creditors and paying legacies, the balance of residue of the estate is then held 'on trust' by the Executor, who then becomes a trustee. One form of testamentary trust is a life interest, in which certain assets are left to a beneficiary for the duration of his or her lifetime only, and on their death passes to the ultimate beneficiary of those assets.


Another form of testamentary trust is the formation of a discretionary trust within the terms of the Will, giving the trustee power to distribute the residue to one or more beneficiaries in such proportions as the trustee considers appropriate.


• Superannuation Funds: In many cases, a person planning for provision for dependants will need to consider what type of benefits are appropriate, given the legal incapacity of children, and perhaps the financial immaturity of other dependants. Knowledge of the types of pension terms and conditions that are consistent with the superannuation legislation is essential.



Estate planning is a very clinical and objective process. However, the emotional needs of family members should not be overlooked as a relevant factor for consideration in defining an estate plan. Some very tax effective estate plans or asset protection schemes may be inappropriate if the proposed beneficiary is uncomfortable with a perceived loss of control or ownership of an asset.


Furthermore, as cash may be needed in the event of the death of a breadwinner, if discretionary trusts are contemplated in a will to quarantine wealth, it may be appropriate for the testator to ensure that there is a joint account or cash legacy immediately payable to the partner on death to provide immediate funds to maintain the partner and/or children. Also, immediate cash may be accessed if superannuation payments are released immediately on death.



There are a number of structures that might be used to make careful provision for spend-thrift or otherwise vulnerable dependants; e.g., discretionary trusts, protective trusts embedded in either a traditional trust or superannuation pension, or possibly annuities, or life interests. The discretionary trust is the most flexible of these options as it can be used to distribute both income and capital. The tax advantages of superannuation funds have to be weighed against the flexibility that discretionary trusts offer. Obviously, where vulnerable beneficiaries are involved, the choice of trustee and provisions for control and the appointment of trustee are of paramount importance. In the case of discretionary trusts this is more significant because the risks of poor trustee selection extends to fraud, abuse of power, and to unchallengeable exercise of wide discretions in relation to distribution of trust property.

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