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Tutorial 10 (Week 12) Ch14 PROFESSIONAL APPLICATION QUESTIONS: 14.1 What are the key estate planning

Tutorial 10 (Week 12)



14.1 What are the key estate planning matters that financial planners should clients?

identify when advising

Identify objectives and wishes

Identify assets available to the estate for distribution, and other non-estate assets

Ascertain whether the client needs to provide for disabled children or other family members

Identify any tax implications of the estate plan

Ensure a valid and up-to-date will is executed

Establish a power of attorney


What are some of the circumstances that might require a person to update their will? Some circumstances that might require a person to update a will are:

Changes in their personal circumstances. For example getting married, getting divorced, having children or the acquisition or disposal of assets.

Changes in the circumstances of beneficiaries. For example if a beneficiary passes away, becomes disabled, becomes wealthy or poor, develop negative traits such as being fiscally irresponsible.

Death of executor appointed in will.


What is the purpose of a binding death benefit nomination? What are the consequences and risks of having a non - binding death benefit nomination? The purpose of the binding death nomination is to allow superannuation fund members to choose how to distribute their superannuation account upon their death. The consequences of having a non -binding death benefit nomination is that upon death, the superannuation fund trustee will take the member's nomination into account when distributing the super funds but is not compelled to.


Janelle, a widow, is updating her will and has heard from one of her friends that she should establish a family trust for her three adult children. Explain to Janelle the type of trust that would be provided for in a will and discuss the possible benefits of Janelle’s estate being transferred to the trust.

Testamentary discretionary trusts are typically provided for in a will. The trustee has discretion as to how any income are distributed among the beneficiaries. As such the advantages of a testamentary discretionary trust are:

Ability to minimize overall taxation by distributing income to beneficiaries with lower marginal tax rates.

Discretionary trust income for minor (under 18) children are taxed at adult tax rates. As such if the trust accommodates Janelle's adult children and their direct families as beneficiaries then minor children may receive income of up to $18,200 tax free (based on 13/14 tax rates).

Protection from creditors. For example if one of the beneficiaries becomes bankrupt creditors cannot take trust assets as the legal ownership vests with trustee.

Succession of trust assets by providing protection against divorce settlements.

Discretionary trusts are able to provide for minors and/or disabled dependents as the trustee may be instructed to only provide income rather than pass on assets to such beneficiaries who may not have the ability to manage their financial affairs properly.

14.12Explain the purpose of a Power of Attorney including the difference between a general and enduring power of attorney. A Power of Attorney is used when a person (the donor) is unable to perform certain duties as they are absent (physically or mentally) and so gives power to a person (the attorney) to act on their behalf on those duties. An example is if the donor is away on an extended holiday and appoints an attorney to help sell their investment property on their behalf.

The difference between a general and enduring power of attorney is the way in which

The difference between a general and enduring power of attorney is the way in which it starts to operate and when it lapses. A general power of attorney starts on the donor's authority and lapses when the donor decides to cancel it, loses testamentary capacity (mentally incompetent) or dies. An enduring power of attorney only starts when the donor loses testamentary capacity and only lapses when the donor dies.

14.14 Why is it important to differentiate estate assets from non-estate assets when drafting a will? Other than a will, is there any additional estate planning that may be required by a person in dealing with the distribution of their assets to intended beneficiaries? Differentiating estate assets from non-estate assets is important when drafting a will because only estate assets may be passed on to beneficiaries in a will. Other than a will, a person may need to make a binding death nomination for beneficiaries of his/her superannuation and to establish an enduring power of attorney to ensure financial affairs may be organised should they lose testamentary capacity.

14.15 Graeme and Anne are aged in their eighties and concerned about who will look after their daughter aged 36 upon their death. Their daughter has a major disability and there are no other family members able or prepared to look after the daughter when they die. What are the couple’s options? Graeme and Anne may draft in their will to establish a testamentary trust which will provide for their disabled daughter. The appointed trustee will use the trust assets to arrange appropriate care for her.

Alternatively or in conjunction with the testamentary trust, a guardianship order can be obtained in which the appointed guardian makes choices about her lifestyle should her daughter not have the mental competency to make such decisions.

14.16 Barbara and Ewan Poulter come to you for financial planning advice. They are in their late fifties and are abou t to sell their business and retire. They have two children David, aged 34, and Sarah, aged 31. Sarah is mentally disabled and is living in supported care. She receives a disability pension, and Barbara and Ewan provide further financial support. Sarah’s needs are quite simple and inexpensive, but Barbara is anxious to ensure that Sarah is adequately provided for after Ewan and she die. Although David has a family of his own and runs a plumbing business, he is a wonderful support to his parents and sister. Advise Barbara and Ewan of the issues they need to consider in their estate planning and give guidance on how they can best provide for Sarah upon their death.

Issues to consider include:

Who will be responsible for the ongoing care of Sarah?

Any inheritance left to Sarah will need to be managed on her behalf.

Sarah may not be able to make a will need to consider who will receive her estate.

• What is the impact of any inheritance on Sarah’s access to government support (e.g. disability pension, assisted care)?

How much of their estate do they wish to leave to David and his family?

• Can they protect David’s inheritance from any future marital breakdown?

How to provide for Sarah:

Barbara and Ewen should consider leaving money to Sarah through a testamentary trust. This can provide for Sarah’s needs while not giving her direct access to the money. It can also provide for distribution to other beneficiaries on Sarah’s death. There are many difficult issues to consider, such as who will manage the trust, who should be the beneficiaries, how much should be left in the trust, how will Centrelink view the trust assets. This is a case where a legal estate planning expert will need to be engaged.

14.22Denis is an electrician and has a $500 000 life insurance policy in place owned by his wife Sally. Denis also has $700 000 held in his superannuation account with a non-binding death benefit nomination in place leaving 50% of the funds to his two adult children and 50% to his cousin who is mentally disabled and cannot adequately look after himself. The cousin is currently receiving an income support pension from the government. The couple’s home is jointly owned by Denis and Sally, as is the couple’s share portfolio. Denis has a will in place that provides

for the establishment of a testamentary trust upon his death and Denis is seeking to

for the establishment of a testamentary trust upon his death and Denis is seeking to maximise the amount of his estate that is able to be held in the testamentary trust. Discuss the following issues:

a. How is each of Denis’s assets likely to be distributed upon his death?

$500,000 life insurance policy would be paid directly to Sally In terms of Denis’ superannuation balance, the trustee of the fund will have ultimate responsibility for determining how the funds are to be distributed but the trustee would consider the preference of the member. The funds are likely to be paid directly to SIS dependants. The home and shares that are jointly owned will automatically pass to Sally upon the death of Dennis.

b. What modifications would be required to help Denis achieve his objective of maximizing the amount of his

estate held in the testamentary trust? Based on the above distributions, there would be no assets within Denis’ estate for transfer into a testamentary trust. If Denis’ objective was to maximize the amount of funds held within the testamentary trust, the following could be considered:

Life insurance policy to be owned by Denis

Superannuation fund to have a binding death benefit nomination in place with nominated beneficiary being “The Legal Personal Representative (Estate).” This would means that the super proceeds would be paid into the estate of Denis.

Family home and share portfolio to be owned under a tenancy-in-common arrangement rather than under joint tenancy.


What potential problems could be faced by the cousin upon the distribution from Denis’s superannuation fund and can you suggest any solution?

Issues to consider include:

Will the cousin be able to appropriately manage the funds?

What impact will the distribution have on the receipt of the government income support pension by the cousin?

The transfer of the funds into a testamentary trust would provide some asset protection of the cousin. Question however, of who should be trustee of the trust?