When it comes to planning your estate, it is important to consider the types of Wills available to assist in meeting your testamentary wishes. Wills can be very simple or accommodate a range of possibilities.

The following is an outline of the most common types of Wills. It is not a substitute for sound legal advice as everybody’s situation is different and good estate planning requires consideration of a person’s unique personal and financial circumstances.

Simple Wills

A simple Will is generally appropriate for spouses who have not previously been married nor had children from a former relationship. The Will provides for the estate to go to the surviving partner in the first instance and then upon the surviving partner’s death, to their child or children.

The distribution of assets is generally uncomplicated. If a child predeceases the surviving parent then the Will can provide for that child’s share to go to his or her child or children.

As with all Wills, one or more executors and trustees (if relevant) are appointed and there may be directions regarding guardians for minor children, a wish to be either buried or cremated and any other specific funeral arrangements.

Substitute provisions in the event of an executor or trustee being unable or unwilling to act in that capacity should also be included.

Complex Wills

A complex Will has the same features as a simple Will but provides a more sophisticated formula for distributing assets.

Complex Wills often include a life estate which gives the ‘life tenant’ the right to occupy the deceased person’s residence for his or her lifetime after which the property falls to the residuary estate for distribution to the testator’s beneficiaries. A life tenancy may be appropriate where the life tenant is elderly and the testator wishes to provide accommodation for that person but ultimately pass the property onto his or her children.

The Will generally incudes obligations for the life tenant to insure and maintain the property and to pay rates. It may also provide for situations where the life tenant wishes to downsize and move into smaller accommodation.

Alternatively, a complex Will may provide for the right of a beneficiary to purchase shares in a property gifted jointly to other beneficiaries either immediately or after a certain period. The tax implications must always be considered with these provisions as well as an appropriate timeframe and formulae for valuing the property.

As suggested by their name, these Wills are complex and require careful drafting to cover a number of contingencies and to ensure that adverse or unintentional outcomes do not arise.

Mutual Wills Agreement – for blended families

A blended family is one comprising a child or children from a previous relationship of one or both spouses or de facto partners. There is no simple solution for this very common situation.

The most typical issues faced within a blended family are the competing interests of past and present partners, biological children and step-children. Each testator usually wishes to provide for the current partner and their own children from a previous relationship as well as any child or children of the present relationship.

In some instances, if adequate provision is not made from a deceased estate, an eligible beneficiary may be able to make a family provision claim on the estate causing distress, delay and uncertainty for the family.

A Will can be drafted for the partners to leave their assets to each other and then on the survivor’s death divide the combined assets between all children (from former and / or present relationships). Technically this is ideal however, there are no restrictions on a person altering a Will after the first partner passes and a new Will could leave out a child or children of the deceased partner. Whilst these types of Wills are made with good intentions, there are various circumstances and influences that may change the surviving partner’s testamentary wishes down the track.

A Mutual Wills Agreement, although not foolproof, can help minimise the risk of a surviving partner later changing his or her Will. Essentially, this is a binding agreement made between the parties that neither will alter the intentions set out in their respective Wills after one of the partners dies.

The surviving partner will have an obligation to hold the assets on trust for the beneficiaries named in the Will and is bound by that agreement. The agreement will also seek to prevent a partner from deliberately squandering assets and beneficiaries may seek assistance of the Court if the agreement is breached.

The agreement however does not prevent a family provision challenge and the remarriage of the surviving partner will complicate the agreement. Those benefiting under the Will also need to be aware of the agreement to facilitate enforcement action if this becomes necessary.

Testamentary Discretionary Trusts

A Testamentary Discretionary Trust is a trust contained in a Will effective upon the testator’s death. The testator pre-appoints a trustee in the Will to manage the estate assets. The trustee chooses how and when the assets are distributed giving flexibility and control. The trust can provide for various scenarios and there are many benefits:

• Assets can be preserved so that they can pass through future generations.
• Income can be divided between beneficiaries to take advantage of their individual tax thresholds and financial circumstances.
• The trustee’s discretion to choose the recipient of a major asset (such as real estate) and when that asset should be transferred can avoid or postpone a Capital Gains Tax (CGT) liability.
• Distributions to at-risk or vulnerable beneficiaries (those with disabilities, gambling or drug addictions) can be monitored and managed.
• Assets can be safeguarded against unintended distributions to a beneficiary’s estranged partner or a creditor of an insolvent or bankrupt beneficiary.

The benefits to be gained by creating a Testamentary Discretionary Trust should outweigh the costs of administering it. Consequently, trusts are frequently used for high value estates.

In some circumstances, however a modest estate may also benefit from a testamentary trust, particularly where the testator is part of a blended family or if it is expected that assets will increase over time.

Conclusion

There is no one-fit solution when it comes to preparing your Will. Good estate planning requires consideration of a number of matters to safeguard your assets and ensure they benefit those you intend.

Your Will should be prepared in conjunction with other estate planning documents and strategies to ensure maximum benefit and minimal disruption to your testamentary wishes.

If you or someone you know wants more information or needs help or advice, please contact us on 02 4862 1988 or email [email protected].