Planning Ahead:Wills and Trusts
Katherine Hawes – Principal Solicitor Aquarius Lawyers
What is Estate Planning?
- It covers several matters including managing your finances and assets, documenting your preferred care arrangements and nominating who you authorize to act on your behalf.
- You may never need to enact some of these plans, but many people feel more secure about the future when they’ve thought through the relevant issues and recorded their decisions.
Wills and Testamentary Trusts
What is a Will?
A will is a document by which a person may direct the way in which your property may be dealt with on your death.
- It is about you making the choice as to the distribution of your assets.
- To be valid the will must be of your own free will.
- Formal requirements are needed for the will.
What does a Will do?
- It allows you to determine the distribution of your assets.
- Make donations to charity.
- Specify certain special items to family and friends.
How can I make sure that my wishes are carried out?
- You should appoint a person as an executor in your Will, to handle your affairs after you die.
- It should be someone you trust. Before nominating them you should ask whether they are prepared to be your executor, as they will be responsible for seeing that the terms of your Will are legally carried out.
Capacity to make a will
- You must have the mental capacity to understand what you are doing.
- The court looks at your mental capacity at the time of making a will.
- You must comprehend the nature of the act they are undertaking.
Special Disability Trusts & Testamentary Trusts
A well drawn Will can incorporate a Special Disability Trust to take effect on the death of the surviving parent. Special Disability Trusts were created by the Federal Government in 2006 to allow parents and other family members to provide assets for a disabled person with a severe disability, without affecting the disabled person’s entitlement to the disability support pension.
How does a Special Disability Trust work?
- A Special Disability Trust can hold a maximum of $578,500.00 (this amount is indexed annually) and apart from $10,250.00 per annum, income and capital of the trust cannot be used for the disabled person’s general day to day living expenses. The trust must be used for the disabled person’s reasonable.
- Care needs which arise as a result of the disability, e.g. mobility aids and a modified motor vehicle.
- Accommodation needs which arise as a result of the disability, e.g. the purchase of a modified residence or the payment of an accommodation bond in a residential care service.
- The value of assets held outside the Special Disability Trust for the benefit of the disabled person will not affect his/her entitlement to the disability support pension as follows.
- If the disabled person owns a home $186,750.00.
- If they do not own a home $321,750.00.
- Thus, at present, the maximum parents can leave for the benefit of a disabled child is $900,250.00 ($578,500.00 & $321,750.00).
Meet Claire and Peter
- Claire and Peter have three children. Alex aged 50 and Elizabeth aged 45, both are married with children. Their son Robert aged 55 is severely disabled and lives with them at home.
- Claire and Peter have assets totaling approximately $2.4 million. They wish to divide their estate equally between the three children, meaning each child would receive approximately $800,000.00.
- They complete professionally drawn Wills.
- They appoint a Trustee company as trustee of Robert’s share of the estate as they do not wish to impose the day to day management of his trust on Alex and Roberta due to their family commitments.
- The Will gives the trustee the option to divide as appropriate Robert’s share between a Special Disability Trust and an all needs protective trust. The purpose of the all needs protective trust is to provide for Robert’s day to day needs not permitted to be paid from the Special Disability Trust e.g. toiletries, petrol, vehicle maintenance, registration and insurance.
- On the current values of their estate the trustees would pay from Robert’s 1/3 share of the estate ($800,000.00), $587,500.00 in to the Special Disability Trust with the balance ($212,500.00) into the all needs protective trust.
- As a result of careful planning Claire and Peter have ensured financial security for Robert through their Wills without him losing his entitlement to the disability support pension.
- If the Wills did not incorporate a Special Disability Trust Robert would have lost his entitlement to the disability support pension.
- The entitlements of Alex and Elizabeth were left in optional testamentary discretionary trusts for asset protection and tax advantages.
- Even where parents have assets in excess of $900,000.00 their Wills should provide the option of establishing a Special Disability Trust as it may be that by the time of the death of the surviving parent the amount that can pass into a trust has increased (due to indexation) or the value of the parents’ estate may have diminished over time.
Power of Attorney
Prescribed power of attorney
An ordinary (now called prescribed) power of attorney is a deed giving the person you appoint (your nominated attorney) the power to do anything legally or financially that you can do, on your behalf.
Enduring power of attorney
- This power of attorney stays in effect if you lose your mental capacity after you have appointed someone, so you must trust the person you appoint to act in your best interests.
- Both the person granting the power and the person nominated as enduring attorney must sign and accept the conditions outlined in the document – your enduring power of attorney does not become operational until the appropriate documents are signed before a prescribed witness (e.g. solicitor, barrister, or registrar of the local court).
To make a power of attorney you must be of sound mind. However, if you haven’t appointed an enduring power of attorney and you are diagnosed with dementia, you are advised to appoint one as soon as possible.
A prescribed power of attorney will only be legally valid for as long as the person making the appointment is of sound mind. An enduring power of attorney will remain legally valid even though you may lose mental capacity after you appoint someone.
- A guardian is given the legal power to make important personal decisions on behalf of another adult. Your guardian may have to decide where you should live or what health care and services you need.
- Guardianship is therefore different to a power of attorney, in that a guardian is appointed by a third party rather than being nominated by you. A guardian can be appointed – in your best interests – even if you are no longer of sound mind.
- If you become ill or disabled and can no longer look after your financial and property affairs and you have not nominated an enduring power of attorney you will need to have a guardian, or a financial manager, appointed.
What is enduring guardianship?
- Just like an enduring power of attorney, you can also appoint an enduring guardian who would take up this role if or when something happens to you where a guardian would be required. Some people prefer to nominate their own guardian in advance, rather than having someone applying on their behalf to the Guardianship Tribunal.
- You can appoint an enduring guardian yourself, in writing. Because of the appointment’s enduring nature,the document must be witnessed by a solicitor, barrister or registrar of the local court.
How do I end a power of attorney?
- A power of attorney ceases to operate when either the attorney or donor notifies the other that they no longer wish to continue the arrangement – the most secure way to do this is in writing. It also becomes invalid if either of you dies or becomes bankrupt.
- If the power of attorney was registered you must also notify the Department of Lands if the appointment ceases.