Will - Is set up correct??

Hi everyone,

I am in the process of updating my will. Always an emotive type of issue but a necessary process to ensure that in the event of unfortunate circumstances assets are transfered correctly to your nearest and dearest.

Anyway, I am unsure if the draft of the will I have is exactly what I need in my circumstances. I went to my solicitor yesterday and came away with more questions than he seemed to be able to answer - not a good sign.

I had thought (mistakenly so as it turns out) that my will had been set up as a Testamentary will trust. My main concern at this stage is to ensure that our assets (real estate) will pass to our daughter without capital gains tax/stamp duty being triggered in the process and be held on trust for her until she reaches a certain age. My solicitor assures me that the wording of the will as it now stands means that the assets will be held upon trust for her - and therefore there will be no duties (or capital gains tax ) payable by the estate unless the assets are sold. I understand that if the assets are sold, then capital gains tax will be payable.

The relevant section of the will reads:

"In the event that my said wife should predecease me then I give devise and bequeath the whole of my estate both real and personal to my said Trustees UPON TRUST to sell call in collect and convert the same into money and out of the proceeds of such sale calling in collection and conversion TO PAY all my just debts funeral and testamentary expenses Probabe and Federal estate duties (if any) and subject to payment thereof TO HOLD the rest residue and remainder of my estate UPON TRUST for my daughter .....insert name etc for her sole use and benefit absolutely."

Is anyone able to confirm that there would be no capital gains tax paid on the transfer of real estate to the estate as the wording now stands before I seek a second legal opinion?

Your thoughts will be greatly appreciated.


Regards Jason.
 
I think there would be no CGT on the transfer to your daughter, but there would be CGT on property sold to pay your debts.

Thanks battler. That is the general gist I got from the solicitor too. We do have life insurance that would cover out debts so there won't be any need to sell the assets - but that's a whole other issue!

Thanks again, much appreciated.

Regards Jason.
 
Hi Jingo

The will as you described would probably be a bare trust. ie the assets are your daughters but held in the name of someone else until she reaches a certain age.

It might work out better if you could set up a discretionary trust in the will so that the assets will pass to a trust with your daughter controlling the trust when she comes of age. This will add significant benefits straight away and long term.

Ask your lawyer about this as it could help your daughter later on. eg. She may have children and then want to pass some of the trust income to them instead of herself. Under a testamentary trust child beneficiaries pay adult tax rates on the income -so children can get the $6000 pa tax free threshold which they normally cannot get outside a testamentary trust.

Also the wording is of the clause you mention is not in plain English. This must have been done by an older lawyer.
 
Thanks Terry for the extremely valuable information.


Hi Jingo

The will as you described would probably be a bare trust. ie the assets are your daughters but held in the name of someone else until she reaches a certain age..

I was very confused as to which type of trust the will is currently set up in - thanks for clarifying. Would I be right in thinking that as the will currently stands, there will be no capital gains tax or stamp duty etc to be paid when the real estate is passed to the trust?


It might work out better if you could set up a discretionary trust in the will so that the assets will pass to a trust with your daughter controlling the trust when she comes of age. This will add significant benefits straight away and long term.

Ask your lawyer about this as it could help your daughter later on. eg. She may have children and then want to pass some of the trust income to them instead of herself. Under a testamentary trust child beneficiaries pay adult tax rates on the income -so children can get the $6000 pa tax free threshold which they normally cannot get outside a testamentary trust.

Great information again. Thanks. Just to clarify, is the discretionary trust the same as a testamentary trust?

The set up as it now stands provides for the assets to be held upon trust for our daughter, with the executor/trustees controlling the estate until she comes of age. (In fact, we have allowed her to control 20% at 18, 20% at 21 and 60% at 25).


Also the wording is of the clause you mention is not in plain English. This must have been done by an older lawyer.

Interesting you metion this. The owner of the firm is an older man. I have met with him before and he is very knowledgeable and is a property investor - which is good to know. I met with his son the other day - who, unfortunately doesn't seem to be as knowledgeable!

Since then I have rung the firm requesting to make a Testamentary will trust and the son told me that I will have to deal with his father as he himself doesn't deal with these types of wills.

Thanks again, Terry,

Very helpful. It's a minefield out there for an unsophisticated chap like myself!

Regards Jason.
 
Something else you need to consider, is that if you leave everything to your Daughter via a testamentry trust, you have to make sure that any future children you may have are not excluded by the wording you are setting up now.

You also need to consider what happens to your estate if you all get wiped out.
 
Something else you need to consider, is that if you leave everything to your Daughter via a testamentry trust, you have to make sure that any future children you may have are not excluded by the wording you are setting up now.

You also need to consider what happens to your estate if you all get wiped out.

Thanks Battler. Good information. I will ask the lawyer about what happens if we have more children. As it now stands, we have our executor standing in the wings to inherit everything if we are all wiped out!!!

Regards Jason.
 
Hi again

I don't know much about this area, but wish to learn a bit more too.

Any trust set up after death is actually a testamentary trust - so it could be a bear trust, unit or discretionary I beleive. As it is described above the trust is just a bear trust which means there is only 1 beneficiary.

What you want is flexibility and asset protection. - imagine if your daughter goes bankrupt a day before coming of age or being entitled to the property outright? Or imagine if she gets into a relationship. Having a property trust set up can help prevent the assets being exposed to creditors/spouses.

I think there is no CGT issues at all when someone dies and the property is transferred. CGT will only arise when the property is subsequently sold. Having a trust can minimise this - but she may not be able to use the main residence exemption - but she should have enough equity to buy one anyway. Stamp duty is also exempt i think, when transferring from a deceased estate to a beneficiary.

There is now a movement away from that old legal language that you used to see. New lawyers are taught to avoid extra words that essentially mean nothing or the same. e.g the said wife = wife. Why put said in there? 'devise and bequeath' all mean essentially the same thing, so no need to have them all. But this is just a style thing, and shouldn't really matter or affect the outcome at all.
 
Thanks Terry for the information. Things are becoming clearer now.

I have an appointment next week to see the owner of the law firm who will guide us through setting up a Testamentary will trust.

Regards Jason.
 
Jingo, Terry, and others, something else to consider at this time, is power of attourney (sp?), both medical and financial.

In our case we have both covering each other (my wife and I) and then for our two kids if we become incapable.

This may be needed before we get to wills and testamentry trusts. Which are after the event.

This is what we set up a few years ago and was simple enough that even I could understand it!:)
 
Please report back what they say


I have also just received an email notice of some interesting books which may be of interest

Death & Taxes: Tax Effective Estate Planning 2009
http://www.thomsonreuters.com.au/catalogue/productdetails.asp?id=9447


Drafting Trusts and Will Trusts in Australia
http://www.thomsonreuters.com.au/catalogue/productdetails.asp?id=8815

Hi Terry and Battler,

I know it's ages since I wrote this thread. Thought I would update. We now have a proper Testamentary Will Trust in place. The lawyer was extremely helpful - and although the process took a while (draft will etc, lawyer on holidays, us away etc etc) I am pleased that it is in place.

Basically the Testamentary trust comes into effect when we die. If I die first a Trust is established for my wife. If she dies one is established for me. If we both die one is established for our daughter. If she dies and leaves children, (Our Grandchildren) one is established for them etc.

The Testamentary trust is a good way to pass real estate and other assets on to the next generation. No capital gains tax is payable unless the asset is sold. The trust also offers asset protection and is a way of ensuring that the partners of your children or grandchildren etc cannot make a claim on the estate.

The cost was not much at all. Around $1375 which included meetings, phone calls, draft copies, mail outs etc etc etc.

Regards Jason.
 
Thanks for the update.

However, Since the case of Spry v kennon trust assets owned/controlled before the marriage entered into may not me safe from spouses in family law break downs. This could include those of testamentary trusts. It will depend on how the trust is set up and the circumstances. Its still a strong form of asset protection though.
 
The cost was not much at all. Around $1375 which included meetings, phone calls, draft copies, mail outs etc etc etc.
That's helpful ... I need to update my will BADLY and the only figure I've managed to get is "$296 per hour". Did you get charged at an hourly rate too? Our local lawyers do flat-price wills but we have multiple properties and a business so we're considered too "interesting" for the flat-price deal.
 
Thanks for the update.

However, Since the case of Spry v kennon trust assets owned/controlled before the marriage entered into may not me safe from spouses in family law break downs.

Thanks Terry,

Would this mean that if my daughter had control of the trust before she married, then, should the relationship break down, her spouse may have a claim on those assets?

Would a de-facto partner have equal rights?



This could include those of testamentary trusts. It will depend on how the trust is set up and the circumstances. Its still a strong form of asset protection though.

I wasn't aware of this - thanks for the information.

Regards Jason.
 
That's helpful ... I need to update my will BADLY and the only figure I've managed to get is "$296 per hour". Did you get charged at an hourly rate too? Our local lawyers do flat-price wills but we have multiple properties and a business so we're considered too "interesting" for the flat-price deal.

Hi RumpleElf,

Actually, I didn't ask about costs before proceeding - which, I know is a little risky - especially dealing with lawyers! The reason I was happy to proceed is that I had been recommended this lawyer from a friend, and I knew that the firm dealt with setting up Testamentary Will Trusts. (Some of the smaller firms - as for example, the firm I had my initial will drafted through don't specialise in this area).

The account didn't break down all of the charges - hours spent etc. It did mention that the work undertaken amounted to more than $1700, but that the account would be $1375 (including GST).

Perhaps this is due to the recommendation from my friend - who is a lawyer in the same firm - not sure.

As far as drafting the will, the specific number of assets/etc is not important - as they are not individually listed in the Will and has no bearing on the hourly rate.

I can't honestly tell you whether $296 per hour is good value or not - except to say that if this is the rate our lawyer charged, then it would have equated to him spending slightly under 6 hours preparing the will. This included meeting with him twice, a number of phone calls - emails, draft wills etc.

($1700/296=5.74hrs).


Regards Jason.
 
Thanks Terry,

Would this mean that if my daughter had control of the trust before she married, then, should the relationship break down, her spouse may have a claim on those assets?

Would a de-facto partner have equal rights?

I wasn't aware of this - thanks for the information.

Regards Jason.

Yes. This is what happened, recently, to Dr Spry who was a senior barrister and trust expert. He set up a trust before his marriage and later even amended the trust to exclude himself as a beneficiary.

Do a google on Spry, it is a very interesting case. Later on he withdraw about $4mil in cash from the trust and threatened to burn it. He also wrote some nice letters to the members of the high court after their judgment.

These days marriage and defacto are treated pretty much the same.
 
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