Your assets should be distributed to the right people. It may not be wise to leave all your assets to a 15 year-old child (without any conditions) or to an adult child with an imminent marriage breakdown. What can you do to ensure your assets are protected from 3rd parties and distributed to the right people?
A Will is the cornerstone of any estate plan.
It provides you with flexibility in choosing who should benefit from your estate and how they should benefit. It is therefore important that your Will be kept up-to-date to reflect your current wishes and changing circumstances. This will ensure that your assets are distributed to the right people. If you do not have a Will when you die, you will die 'intestate' and your estate will be dealt with according to State legislation. Generally, the estate will be divided between the surviving spouse and children, but not necessarily in equal proportions. Accordingly, your assets may not be distributed to the people that you intended.
A Will does not necessarily govern all of the assets that you may own or control. It only governs those assets that are estate assets. Estate assets include all assets that are owned personally by you, including, but not limited to:
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a share of an asset owned as tenants in common
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shares personally owned in a company
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a superannuation death benefit paid to your estate
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the proceeds of a self owned life insurance policy
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a right to an asset held under a contract, and
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any loans that you have made to others
It is important to note that although a Will provides a direction as to who should receive the assets of your estate, it can be challenged by 3rd parties and the Court has the power to change how the assets of the estate are to be distributed. The following persons are generally able to challenge a Will.
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a spouse of the deceased, including a former spouse
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a child of the deceased
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a dependant of the deceased, and
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a creditor of the deceased
Where a claim is likely to be made, it may be prudent to make provision in the Will for the likely claimant. This may avoid a challenge to the Will and the inevitable delays in administering the estate. It may also be prudent to increase the value of the estate by taking out additional life insurance to meet any potential legal costs or payment should a challenge be successful. It is possible to avoid a potential challenge by structuring your financial affairs so that no asset actually passes through your estate. This practice is commonly referred to as 'asset protection' and is used to help protect your assets from 3rd parties, including:
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potential challengers to the Will (as listed above)
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creditor's of a beneficiary, including the trustee in bankruptcy
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a spendthrift beneficiary, and
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property settlements arising out of the divorce of a beneficiary with his or her spouse
The structures commonly adopted to help protect your assets from the above parties include:
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testamentary trusts
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assets held in a discretionary trust
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assets owned as joint tenants
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superannuation death benefits paid directly to a dependent, and
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a life insurance policy on your life owned by a dependant or a nomination made by you as owner, in favour of another person in accordance with relevant legislation
