Before his death, Lang Hancock established the Hope Margaret Hancock Trust, nominating Gina Rinehart as trustee with his four grandchildren named as beneficiaries. The Trust holds a large share of the family’s substantial wealth. In 2011, Rinehart’s daughter, Hope Rinehart Welker, brought legal action in the NSW Supreme Court over a commercial dispute, to have Rinehart removed as sole trustee. Her brother, John, and sister, Bianca, were later revealed to be parties to the dispute. The discord in the family has attracted considerable publicity in the media and continues to paint a picture of family disharmony, resentment and bitterness.
Very importantly and often forgotten, Estate Planning is not only about the financial legacy that you leave behind and the division of your assets – it is about creating the last memory of you. Often families are broken apart fighting over estates of their parents and the person who has passed away’s memory is forever tainted by the mess they left the beneficiaries with.
On the technical side when you pass away you cease to exist legally and hence can’t own anything. Your Will is the legal document to pass your assets to those who you want to get it. For some this may be simple and they get it right and the process is smooth. For others even with a simple life they get is horribly wrong, leaving family to fight through their lawyers, and sometimes the court to divide up a diminishing sum.
Whilst there are a lot of technical facts with the way a Will has to be drafted, witnessed and executed one of the often not understood is that the Will only deals with assets you own in your own name. With the growing affluence in Australia we see more complicated asset structures such as superannuation and family trusts. In both cases the legal owner of the assets is the trustee of the trust not you personally.
If we look at superannuation which along with the house is the main asset of many Australians. As the assets of the superannuation fund are legally owned by the trustee, your Will cannot deal the assets in your super fund. On your death unless you have made a legally binding Binding Death Benefit Nomination to the fund the ultimate decision as to where the superannuation moneys is paid to is decided by the trustee. This can be a good or bad thing, but trustees of large super funds will tend to avoid controversy and in any doubt will likely pay it to your estate for distribution. The problem with this is that your estate is governed by your Will and your Will can relativity easily be challenged and this may not be the outcome you or your loved ones want.
Likewise if a couple owns a house jointly, the ownership can be done in several ways and the various ways are treated differently in your Will. The default in New South Wales is Tenants in Common which means each party owns half the property and this half is passed by the Will. Again this may be what is desired, however if a couple want to leave the house to each other and there is a challenge to the Will then half the house is up for grabs. The other common ownership method is Joint Tenancy which passes the deceased persons interest to the surviving party usually the spouse bypassing the Will. The same occurs for a joint bank account where on the death of one party their interest in the bank account passes to the surviving party usually the spouse.
Whilst this all sounds relatively straight forward it often isn’t. Probably the first mistake people make is they never review their Estate Plan and it drifts from reasonably meeting their needs to being totally inadequate when life moves on, kids come along, marriages sometimes move on and we create assets, wealth and sometimes liabilities and complex family environments.
These simple strategies can go bad when circumstances change, an example would be a couple purchase a house in joint names, they divorce however have yet to finalise their financials. One spouse dies then by survivorship the total house transfers to the former spouse potentially leaving nothing in the estate. With blended families now common place simple strategies may give you the wrong result.
For those with more complex affairs such as Self Managed Super Funds and Family Trusts then special care needs to be taken as your Will does not address the assets of the trusts and there are many complications that need investigation. Many Estate Plans include Self Managed Super Funds and Family Trusts as they can be very good estate vehicles. Often we see assets owned by a Family Trust thinking there is no exposure to these assets in an estate, only to find in the financial accounts of the Family Trust a large loan from the deceased to the trust sometimes from when assets were transferred into the trust or from years of profits not being distributed. The loan to the trust is an asset of the estate, and all the work protecting the assets from the estate comes undone.
Thankfully in all these circumstances there are solutions and it is where a good specialist in estate planning can work though all the details. One objection we often get when putting together estate and asset structuring plans is the cost. My view is simple, if you plan to leave an estate, then the costs of preparing the estate is effectively being paid for by the beneficiaries. Meaning if you have a poorly constructed estate plan with total assets of $1.0 million and as a result say $100,000 tax has to be paid either by the estate or the beneficiaries and a well constructed estate plan would have reduces the tax liabilities to almost zero, then spending $5,000 on the estate plan is a good investment for the beneficiaries.
We often see people saying I’ll leave it to the kids and let then squabble over it. This sometimes happens because they don’t know how to fix it. Estate planning is about determining what outcome do you want, what outcome don’t you want, can the outcome be reasonably executed, is there someone who can or is likely to challenge my plan, and as a result of this thinking do I need to revisit what I am currently doing. Remember leaving your kids to squabble will leave a lasting memory that you left a mess. It is important to remember that estate planning is difficult as we have to face our own mortality. The beneficiary of a good plan is your loved ones and your legacy. A good question to ask yourself is if I died last night would my current plan work. Unless the answer is “Yes” it is in place, it is current and the survivors and beneficiaries all know what to do then you need to revisit your Estate Plan. To do this you should consult a specialist in estate planning.
If you would like to discuss this or any other matter, please feel free to call Rob MacLean.