Again the other day we saw a client who assumed their existing Will automatically dealt with their discretionary trust and superannuation assets. Have any of your clients had this misconception that there was no need to consider these assets further? It may be helpful to your clients if you too raise with them that these assets usually are not automatically dealt with under their Will and special attention needs to be given.

As you would know, the truth is these assets may or may not end up being dealt with under the client’s Will. Therefore, it is important that they be dealt with in the way the law allows to ensure they end up with the persons your client intends.

Discretionary Trusts

The main considerations relevant to an estate plan include:

  • Dealing with control of discretionary trust

The first step is to check the powers of appointment in the trust deed (if any) and ensure that the power of the appointor can be passed onto a person of the appointor’s choosing under their Will, who will ultimately control the trust. If the trust deed does not allow for this to be done in their Will, then it may be appropriate to consider whether the trust deed needs to be amended to allow for this.

  • Who are the beneficiaries?

The second step is to check who your client wishes to receive the trust assets and ensure that those persons are beneficiaries in the trust deed. Ultimately the trustee will be in charge of making distributions (at their discretion) and it is unlikely that they would want to add beneficiaries which could potentially trigger a re-settlement resulting in stamp duty and capital gains tax being payable. The client can be advised when making their Will what can be done to achieve their wishes.

It may be at this point your client also considers leaving a letter of wishes to the trustee of the discretionary trust with how they would like to see the assets distributed.

Superannuation... when things don’t go to plan

  • We recently were consulted by an adult child whose mother had died. The mother had a superannuation death benefit in a retail fund worth $240,000 and made a preferential nomination in favour of her adult child. It seemed clear that the deceased thought she had done what was required to make sure her child received her superannuation. Unfortunately, the trustee of the superannuation fund decided to pay it to the deceased’s spouse (the child’s step-father). Upon the child’s objection to the superannuation trustee’s decision, the trustee decided not to change their decision and the child’s step-father ended up with the lot. The child took the matter no further.

This whole situation could have been avoided if a valid binding death nomination had been made (in addition to taking proper financial advice on any potential taxation consequences of leaving superannuation to a non-tax dependant).

The unintended consequences of not properly dealing with assets in an estate plan is they may not end up with the intended person, can result in major family disharmony and an eligible person challenging a decision of the trustee of the superannuation fund or a Will, with the costs of any challenges to a Will being not insignificant.