Many clients have the preconceived idea that everything that they own or control in their lifetimes shall be dealt with according to the provisions of their Will. For the purposes of administering a Deceased Estate, however, only assets that are owned personally will be included. One way of conceptualising this is by picturing silos, as pictured below, each of which represents the  different compartments which comprise a person’s wealth. This blog post will explain which of these silos will form part of a Deceased Estate and which will not. There are, however, ways of dealing with assets in the other silos after a person’s death as a consequence of how their Will is drafted due to the control of those non-estate assets which the Will provides!

Photo of three silos in a field with artwork painted on them

The first silo: personally-held assets

The corpus of an Estate will comprise of assets that are owned personally (i.e. in the Willmaker’s own name). For most people, this will include residential property (if not held jointly), motor vehicles, shares and/or other personal items (chattels), such as furniture or jewellery. The terms of the Wil, can leave (bequeath) specific items from this silo to individual beneficiaries and/or direct that what is not specifically bequested (i.e the “ residuary Estate”) is to go to one or several people.

For assets that are owned jointly, such as is often the case the matrimonial home or principal residence, their distribution under a Will depends on the manner of holding. If spouses own a property as joint tenants, the property will pass to the survivor automatically. If a property is held jointly but as tenants in common, each share can be distributed under a Will as you wish; however, it is crucial that consideration is given to the effect of any such distribution. For example, for additional asset protection or in the case of a “blended family”, often the surviving partner is given the right to reside in the property having the use of the deceased spouse’s share for their lifetime. This preserves the deceased spouse’s share to be distributed in accordance with their Will on the death of the survivor.

Wills that this office prepares allow that interest to be utilised to purchase a replacement property or to fund the purchase of a retirement home bond, with not only the deceased spouse’s capital being protected, but with any funds left over being available to provide extra income to the survivor (if necessary) by being invested for their use and benefit.

The second silo: superannuation

Whether superannuation member death benefits are held in a self-managed superannuation fund (SMSF) or a retail or industry fund, that superannuation is controlled by the fund’s Trustee. This means that it is not the member’s asset to distribute under the Will, as the Trustee has the legal title. The member can, however, direct how this superannuation is to be distributed after their death. We recommend that this takes the form of a non-lapsing binding death benefit nomination.

This is a document that directs the Trustee of the fund to distribute the deceased’s  superannuation member death benenfits to one or more ‘superannuation dependants’ (being a spouse [which includes a “domestic partner”], children or other dependants) or to their legal personal representative (in this case the Executor/ Trustee of the deceased member’s Will). The legal personal representative can then hold these member death benefits as the provisions of the Will direct, including for the benefit of non-dependants for superannuation purposes who would otherwise not be eligible to receive directly from the superannuation fund trustee.

For taxation reasons, our Wills direct the Executor to hold any superannuation funds separately to other assets of an Estate (thus maintaining the silo effect). Depending on the structure of the Will, the Executor(s) may then distribute the superannuation assets directly to the nominated beneficiaries or to the trustee(s) of a discretionary testamentary trust structure.

In certain circumstances, such as where the Willmaker is of pensioniable age, it may be preferable to remove non-cash assets from the superannuation fund during their lifetime (which can be done on a Capital Gains Tax (CGT) free basis) so that they fall into the ‘Will silo’, thereby not incurring the higher taxation rate payable for distributions from superannuation to adult child beneficiaries who are considered “non tax” dependants. In the case of assets such as commercial real estate this can be effected without incurring stamp duty or CGT.

The third silo: trust or company assets

For our clients who are small- to medium-business owners, many of the assets that they control and use frequently (such as motor vehicles) are not owned by them personally but by a proprietary company of which they are shareholders. In the case of the Trustee of a discretionary trust which they have established in their lifetime the shares only have the issued value (normally $1.00 per share) as the assets are part of the corpus of the Trust.

In the case of a proprietary company which owns the assets in its own name, the value of those assets are reflected in the value of the shares by dividing the capital value of the company’s assets by the number of shares on offer.  As such, these “underlying” assets do not fall into an Estate to be dealt with in accordance with the Wills.

Control of a company which in turn owns and conducts a family business is a different matter. In such a case, a Will allocates the deceased’s interest in a company by allocating the Willmaker’s shares to the Executor/ Trustee or to certain beneficiaries, allowing them to take over the business following the Willmaker’s death. The right to sell or access the “underlying assets” referred to above can therefore be transferred under a Will by transferring the control of a company.

In the case of  a discretionary family trust, its Trustee will continue to operate after a Willmaker’s death with any income generated from the assets distributed to the beneficiaries as nominated by the directors of the Trustee entity, who will be appointed as the provisions of the Will of the controller(s) of the Trustee company so nominate.

Care must be taken however to ensure that the provisions of the Will of the appointor(s) of the Trust and the trust deed “line up” as the provisions of the Trust Deed usually establish its own separate process for appointing a replacement appointor and hence a new Trustee after the Willmaker’s death.

We have extensive experience in the coordination of the control of these various “silos” with the firm’s principal Tony Kelly having nearly five decades of experience in Estate planning, including superannuation and advising small- and medium-enterprises (SMEs).

The preparation of a coordinated succession plan for a Willmaker’s lifetime and an estate plan which continues the process subsequent to their death is what we do best. Contact us today to arrange a no-obligation meeting to discuss your needs.