ESTATE PLANNING 2017 – WHAT YOU NEED TO KNOW

Overview

Latest developments1

Three key strategies to be aware of2

Interactive case study examples3

Tips for young players 4

Strategy 1: Testamentary Trusts

3 Things

Don’t becomea war story

Estate planningis more than

just a will

No estate plan =estate plan

Risks

Litigation against a beneficiary 1

Personal relationship breakdown of a beneficiary 2

Challenge against the estate 3

Protecting wealth from spendthrift beneficiaries 4

Didn’t take opportunity to use testamentary trusts for tax planning 5

Testamentary Trusts

Trust overview

Structure of Testamentary Trusts

Various types

Advantages

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2

3

4

Disadvantages5

Testamentary Trusts & DIV 6AA

Excepted trustincome

2

Arm’s lengthdealings

1

Inter vivosTrusts

3

Borrowing

5

Gifting

4

Division 6AA

Excepted trust income - sections102AG(2)(a)(i) and 102AG(2)(d)(i)

Minors taxed as adults on distributions from Testamentary Trust

Approximately $20,000 tax free and the balance at normal adult rates

Excepted trust income is the amount which is assessable incomeof a trust estate that resulted from a will, codicil or court ordervarying a will or codicil

Bamford & Testamentary Trusts

Should require

– income or capital to be identified

– the trustee can make a determination that

Still need to consider other differences – e.g. franking credits (especially if losses)

Issues with Trusts in wills signed pre-Bamford

■ a capital gain forms part of the income component

■ all deductible expenses are to be offset against such part of the income component not comprised of capital gains

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2

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Richstar (2006)

Definition of ‘property’

Defendant sole ‘controller’

‘contingent’ interest held to exist

Subsequent events (cases and Judge)

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2

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Key themes post Richstar

ControlLoan

accounts DistributionsSuccession on trigger events

Next test case

Absolute entitlement

Accounts

Strategy 2: Superannuation

Succession Strategies

Control of trusteeship – who are your executors?1

Death benefit nominations2

– Binding or non-binding

– Lapsing (every 3 years)

– Non-lapsing (set and forget)

Reversionary pensions vs BDBNs

Superannuation will

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4

Superannuation changes

Don’t becomea war story

Impact on reversionary

pensions

$1.6m pensioncap

Binding death benefit requirements

In writing1

Provided to (and approved by) trustee2

Witnessed by two adults3

Member can be identified4

Beneficiaries and interests can be identified5

Lapsing or non-lapsing6

Process for varying nomination

Embedded in deed1

Strict compliance required by trustee2

Prohibition on amendment3

SUPERANNUATION WILL

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Choose your own adventure

Katz v Grossman – Original

Ioppolo v Conti (WA)

Wooster v Morris (Victoria)

McIntosh v McIntosh (Queensland)

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2

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4

Munro v Munro (Queensland)5

Brine v Carter (South Australia)6

Munro

BDBN signed validly

2

Second relationship

1

Estate nominated

3

LPR v estate v dependant

5

Template provided by adviser

4

Katz v Grossman

Father and mother co-trustees and members of SMSF1

Father made a NBDBN in favour of estate for benefit of son and daughter

2

Father appointed daughter as co-trustee upon death of mother3

On father’s death, daughter appointed her husband as co-trustee4

Daughter and her husband had discretion in relation to super benefits5

Benefits paid to daughter6

Challenge by son unsuccessful7

Ioppolo v Conti

Husband and wife co-trustees and members of SMSF1

Wife died with no nomination in place2

Wife’s will purported to distribute super to children3

Husband appointed new corporate trustee of which he was the sole director and shareholder

4

Paid proceeds to himself5

Challenge by executors of wife’s will unsuccessful6

Wooster v Morris

Husband and wife co-trustees and members of SMSF1

Husband had BDBN in favour of daughters (from previous marriage)2

Wife attempted to ignore BDBN, as sole trustee3

Husband’s daughters successfully challenged wife’s exercise of discretion as trustee

4

Wife ordered to pay costs of litigation out of personal SMSF entitlements

5

McIntosh v McIntosh

Son died intestate and without super nomination1

Mother granted letters of administration2

Applied to superannuation trustee to have entitlements paid toherself instead of estate

3

Father successfully challenged mother’s actions for breaching obligation as administrator of estate to maximise estate value

4

Court ordered superannuation entitlements to be paid to estate5

Brine v Carter

Deceased appointed his de facto and three children from an earlier relationship as his LPR

1

The de facto applied for the superannuation death benefits to be paid to her directly, as opposed to the estate

2

If the superannuation proceeds had been paid to the estate, the three children would have been entitled

3

For a period of time, the de facto withheld details of the superannuation death benefit from the three children

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The three children had themselves made an application for the death benefits to be paid to the estate

5

The other LPRs had effectively consented to the de facto making her individual claim by themselves making a claim on behalf of the estate in full knowledge of all relevant circumstances

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Brine v Carter (Cont’d)

Where an LPR seeks payment of a death benefit to themselves personally (ie not to the estate), they will be in a position of conflict, unless the will expressly permits the conduct

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Where there is no express provision waiving conflict, an LPR should renounce their position before taking any active steps to seek personal payment of the death benefit

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Alternatively, the LPR can seek the consent of all other LPRs (if any)9

In seeking the consent of the other LPRs, there is no obligation to also receive consent from each beneficiary under the will

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Lessons

Control of trustee is critical1

Regularly review appropriateness of any nominations and trusteeship2

Strategy 3: Assets Outside The Estate

Assets which do not form part of Estate

Estate assets

Non-estate assets

Asset type

Control

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2

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Regulating documents5

Assets which do not form part of Estate (Cont’d)

Asset Type Control Documents Regulating

Joint tenancy (as opposed to tenants in common)

Survivor Position at law

Superannuation(binding nomination)

Member within three years of death Valid binding nomination

Superannuation(no binding nomination)

Fund trustee post death Trust deed or terms of pension

Discretionary trust(individual trustee)

Appointor/principal, or in the absence of both, surviving trustee. If no surviving trustee, then legal personal representative of estate

Trust deed or trusts Act

Discretionary trustee(corporate trustee)

Appointor/principal, or in the absence of both, remaining directors of corporate trustee, subject to the shareholder’s power to remove

Trust deed or constitution for corporate trustee

Assets which do not form part of Estate (Cont’d)

Asset Type Control Documents Regulating

Unit trust As above for discretionary trusts Ultimate benefit in trust regulated by trust deed and unitholdings

Private company Director subject to appointment by shareholders

Constitution or shareholders agreement. Transfer of shares may be pursuant to will depending on other documentation

Loan to company or trust Lender or legal personal representative of lender

Loan agreement may override will

Business interests Remaining business owners/trusteeof will

Business succession agreement/partnership Act

Life insurance Policy owner or nominated beneficiary Insurance policy

Balcaskie Investments

Beneficiaries not to be trustees

2

Variation to a NSW deed

1

Specific v general prohibition

3

Overlay non-resident rules

5

Change of trustee -CGT and duty outcome

4

The SBR Rules

Subdivision 328-G1

Cross Reference Div 1522

Eligibility3

Cost Base4

Application5

328G

Eligi-bility

CostBase

Div152

SBE

Appli-cation

Structures

Individual to Entity

Entity to Individual

Entity to Entity

Double Roll-Overs

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Core Requirements

ActiveAsset

No Exempt Entity

Ultimate Economic

OwnershipResidencyElection$10M

Turnover

E X E M P T

EPT v TT – Setting up the Trust

EPT TT

Established by the beneficiary who has received (via a will) the property from the deceased person’s estate within three years of their death

Established by deceasedperson’s will

No CGT exemption on transfer of assets from estate to EPT

CGT exemption on transfer of assets from estate to TT

No stamp duty exemption on transfer of assets from estate to EPT

Stamp duty exemption on transfer of assets from estate to TT

EPT v TT – Class of Beneficiaries

EPT TT

Only children can receive concessional tax treatment on distributions, limited to the assets received by the EPT which the children would have received on an intestacy

Children and grandchildren can receive concessional tax treatment on distribution, on all assets of TT

EPT v TT – Distribution of Income

EPT TT

Concessional rates of tax don’t apply to grandchildren

Concessional rates of tax do apply to grandchildren

Only income generated by the portion of the capital which the testator’s children would have received on an intestacy will be entitled to the concessional rates of taxation

All income entitled to the concessional rates of taxation

When should you consider an EPT?

An EPT can be of benefit

for families with minor children where flexibility in relation to tax planning is important

An EPT is of less benefit where

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minor children are the only beneficiaries of the estate minor children will soon turn 18 the value of the estate is minimal

Upcoming events

View shows

Start with WHY1

Adviser facilitated estate planning webinar2

Trust Vesting Webinar 3

Estate planning horror stories 4

National in person roadshow 5

Calls to action

Have the conversations now1

Audit even if they appear 2017 compliant2

Level of specialisation unique in the market3

Truly leverage being the trusted adviser4

War stories5

Immediate opportunities even if an estate plan is 2016 compliantand health excellent

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THANK YOUMatthew BurgessDirector

Mobile: 0403 209 977

Email: matthew.burgess@viewlegal.com.au

Website: http://www.viewlegal.com.au/

Blog: http://www.blog.viewlegal.com.au/

Twitter: https://twitter.com/matthewwburgess

Linked in: http://au.linkedin.com/pub/matthew-burgess/1a/170/675

Instagram: @matthewwburgess

The material contained in this presentation is based either on information derived from our proprietary business diagnostics (including research) or fromother sources within the market, which we believe to be reliable and accurate. It is general in nature and does not constitute specific advice. BusinessHealth makes no representation or warranty as to the validity, relevance or accuracy of this information as it pertains to any specific practice or business.

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