Being Both Executor of a Deceased Estate and Applying for Super Death Benefits

The executor of an estate has fiduciary duties to maximise the estate of the decreased. There can be conflicts of interest where someone is both executor and they apply, in their personal capacity, for the superannuation death benefits of the deceased, and this is because they are trying to avoid having the super death benefits paid into the estate, to benefit themselves.

Example

Mum and Dad divorce many years ago, son dies without a will. Son has about $40k in assets plus about $400,000 in super death benefits. Under the intestacy laws where a person dies without a spouse and children then both parents will benefit equally from the estate.

The issue here is that $40k is in the estate and will go to each parent in the share of $20k each.

If the superfund pays the death benefits to the estate the parents will get another $200,000 each.

If the superfund pays the mum, dad will miss out on $200k and similar if the superfund pays dad.

But, by mum applying for the benefit herself she is depriving the estate the money which means she is potentially breaching her duties as executor. As executor she should be asking the superfund to pay the money into the estate – it is her legal duty to do so.

 Moral of the story – seek legal advice before accepting the position of executor, especially if the deceased

An Example of How poor Ownership Structuring Can be Painful.

Homer and Marge own 5 investment properties all jointly as Joint Tenants. All in NSW and with a combined land value of $1,200,000.

Homer is on the top marginal tax rate and Marge doesn’t work.

They have reached their borrowing capacity.

They have just paid off their main residence and are saving about $10,000 per month.

Issues

  1. Land tax

Combined land tax is $9,236 (2018 year)

If they have owned $600,000 worth of land each then there would be no land tax

  • CGT

If they sell any investment property 50% of the gain will go to Homer. They can’t divert the income to Marge.

  • Paying Down Debt

They have excess cash, ideally this would applied to Marge’s debt as she would pay less tax. But as all the loans are joint they are stuck with reducing the debt relating to both Homer and Marge

  • Offset Accounts

Similar with the cash savings/buffer. It must go into an offset account liked to a joint loan so Homer’s income will increase.

Death Planning

Because they own everything as joint tenants if one dies there is no opportunity to get half of the assets into a testamentary discretionary trust. This will result in extra tax being payable after the death of one of them.

Possible Solutions?

As they have reached their borrowing cap there may not be much they can do if they cannot qualify for a loan. But they could consider

  1. Spouse A selling 50% of the property to Spouse B.
  2. Selling on property and buying a replacement in Marge’s name only
  3. Save up and lend cash to a trustee of a discretionary trust which will buy property and then divert the rental income to Marge
  4. Sever the Joint Tenancy so they hold the existing properties as Tenants in Common in equal shares – no duty, no CGT and easy to do without triggering a loan reassessment. They could then each leave their shares of the properties to the trustee of a testamentary discretionary trust controlled by the other spouse. Half the rents could then be streamed to the children potentially tax free.
  5. Etc

Death and Wills with Assets Held in a Company

Company owned assets cannot be gifted by a person’s will. This is because they don’t own the assets, the company does. However, if the person owns the shares in the company these shares can be gifted, as long as not owned as trustee.

Example

Bart calls the property at 123 Smith street ‘his’property. But it is owned by a company of which Bart is the director and sole shareholder. Bart simply ignores the existence of the company in his thinking.

In Bart’s will he leaves 123 Smith street to his friend Millhouse and the rest of his assets to Barney. The property is worth $500,000 and the rest of Bart’s assets are worth $400,000.

What’s the issue?

  • Bart doesn’t own that property so the gift toMillhouse is invalid,
  • Millhouse gets nothing because of the way thewill is worded,
  • Barney gets the shares in the company which owns the property
  • If the executors sell the shares in the companythis will trigger CGT.
  • Millhouse gets nothing, but Barney gets about$900,000 worth of assets.
  • Millhouse might have grounds to challenge thewill.

Moral of the story – understand your ownership structure and act appropriately.

Written by Terryw, estate planning lawyer at www.structuringlawyers.com.au

Who will look after your minor children if you die?

What happens when both parents die early and minor children are left behind?

The children must come under the care of a guardian. You can appoint a guardian by your will. (for example in NSW s 14 Guardianship of Infants Act 1916 (NSW) gives a parent this power)

If there is no guardian appointed under a will, someone, perhaps grandparents, will need to apply to a tribunal to be appointed guardians

Often there may be a dispute about who will be guardians – two sides of a family fighting it out for example – and this would necessitate the tribunal or court to make a decision. In NSW the relevant legislation is Guardian of Infants Act 1916 (NSW)

 

Some of what to consider when appointing a guardian

  • Will they accept the role?
  • Where does the guardian live?
  • Should they be compensated (via your will)?
  • Is their accommodation suitable?
  • Should they be allowed to use some of the children’s money to extend their house? (a court has said yes in at least one case);
  • How old are they?
  • What If they die?
    • Before you, or
    • Before your kids become 18.
  • Do they get on with your children now?
  • Do they follow the wrong religion?
  • Are they connected with a circus?

This is another reason to consider a will even if you do not have any assets.

 

Written by Terryw of www.structuringlawyers.com.au

 

Contracts and Death

Generally, when a person dies their Legal Personal Representative will be bound by any contracts that the deceased person had entered.

When entering a contract for the sale of land consider this. If you are purchasing a property and the owner dies do you want the contract to continue? If most cases a buyer would still want the property. But a problem will arise where it can take around 3 to 6 months to get probate through.

Without a grant of probate nobody will have authority to sign a contract – which may not matter if the deceased had already entered it. But nobody will have authority to sign a transfer of land document. This could mean even though you have a valid contract you may not be able to settle on the purchase.

Now consider the other side you are the buyer and you die. Do you want your estate to go through with the purchase? If most cases the answer would be no as there will be difficulties on the side of the purchaser too – if loan documents not signed the estate will need to apply for a loan and this could only be done after probate.

Without being able to complete a purchase would lose their 10% deposit, and possibly more. The seller could sue the estate potentially.

Therefore, seek legal advice on whether to have a clause in your contract allowing either party to terminate the contract if either party dies.

Written by Terry Waugh, lawyer at Structuring Lawyers, www.structuringlawyers.com.au

Financial Abuse of the Elderly

There are many instances of elderly being abused financially. Often the abusers are adult children or other family members of the elderly person. In many cases the perpetrator believes they are doing no wrong, but at other times their abuse is more blatant.

Some forms of elder abuse

  • Improper dealings under a power of attorney

This might include an adult child drawing on a parent’s bank account to help themselves, make loans or gifts to themselves or other family members. Sometimes they may ‘need’ the money temporarily and intend to give it back.

  • Bank account abuse

A family member may open a joint account with an elderly person to help them. The account may only contain the elderly person’s money. The elderly person’s health may deteriorate and the younger person may start thinking along the lines of ‘they couldn’t spend the money anyway’. This may also be a plan to inherit the money outside of the will as if the elderly person where to die the money may become the asset of the other account owner.

Sometimes the elderly will give their ATM and pin to another family member, who may then start taking extra funds out.

  • Stand over tactics

I have heard of one incident of an elderly great grandfather being stood over to chance his will. He immediately redid the will a few days later with a lawyer, but this sort of thing would make the will invalid – if it could be alleged.

  • Manipulated into being guarantors

There is many a budding developer or business owner who has talked one or both parents into letting the them use their property as security for a loan. Often the business fails, and the guarantee is enforced and the parents property sold. Luckily it is getting more difficult to use guarantees on parents main residences like this.

  • Under market value transfers

Buying a property from the elder person at less than market value – or even receiving property as a gift. Often this is done for Centrelink reasons too, but this usually doesn’t work anyway, or won’t increase the amount of pension received to 5 years after the transaction.

  • Sell and build a Granny Flat, on your land

This is where granny is encouraged to sell her main residence and to move into with one of her adult children. Often there is not enough space, so granny is encouraged to build a granny flat or otherwise improve the property of the child.

The trouble with this is often granny isn’t an owner of the property, yet she is improving the property with her money. If granny dies her estate is diminished. Many other legal issues to consider too such as bankruptcy or divorce of the child or disputes – granny may want to move out at some point but have no funds to do so.

  • Settlement of large amount of funds on trust

Sometimes a parent is encouraged to contribute funds to a trust controlled by someone else. The parent then has lost control of those funds.

 

If you want to do any of the above, legitimately, then you need to make sure you can rebut any potential allegations of elder abuse. This can be done by various methods (for some of the above) in consultation with a lawyer. For example, the ability to make gifts to family members could be built into the enduring power of attorney document if the principal agrees.

Written by Terry Waugh, Solicitor at www.structuringlawyers.com.au

The Need to Consider Assets Owned as a Joint Tenant in your Will

When two or more people own one asset, such as a property, as Joint Tenants if one dies the asset passes to the survivor automatically bypassing the will. Many people therefore don’t consider the issues of passing the asset in their will because it doesn’t – but this is only the case if you die first.

What if the property passes to you, and then you die shortly after without updating your will?

Example
Dave owns his house with his wife Betty, as Joint Tenants.
Dave dies. Betty inherits automatically. But Betty dies 6 months later without updating her will. Dave hadn’t considered his house in his will – and it would have had no effect if he did. Betty didn’t consider it either, but now the whole house will pass via her will, or the intestacy laws if she has no will.

Solution – assume you will solely own joint tenant assets when making a will.
r more people own one asset, such as a property, as Joint Tenants if one dies the asset passes to the survivor automatically bypassing the will. Many people therefore don’t consider the issues of passing the asset in their will because it doesn’t – but this is only the case if you die first.

What if the property passes to you, and then you die shortly after without updating your will?

Example
Dave owns his house with his wife Betty, as Joint Tenants.
Dave dies. Betty inherits automatically. But Betty dies 6 months later without updating her will. Dave hadn’t considered his house in his will – and it would have had no effect if he did. Betty didn’t consider it either, but now the whole house will pass via her will, or the intestacy laws if she has no will.

The Solution? – assume you will solely own joint tenant assets when making a will; How many people will do so? Without proper legal advice, unfortunate very few.

Written by Terry Waugh, lawyer at Structuring Lawyers, www.structuringlawyers.com.au