Introduction
A will does not dispose of all assets in which you have an interest. Put another way, not all of assets in which you have an interest always form part of your estate when you die.
Sometimes this is because the assets cannot form part of your deceased estate; other times it is because you need to do something more in order to make them form part of your deceased estate. Some examples of assets in which you have an interest which do not automatically form part of your deceased estate include: property owned jointly, an interest in a superannuation fund, an interest in a life insurance policy, an interest in a family trust, assets held in a family trust, and assets held in a company.
Joint Ownership
Assets such as real estate, shares, bank accounts, and motor vehicles held jointly with another person(s) might not form part of your deceased estate. It depends upon whether that joint interest is characterised as joint tenants, or as tenants in common. The distinction is not always clear, and expert advice should be taken. An interest in an asset which is held as a joint tenant at the time of your death almost never forms part of your estate. There are a couple of exceptions to this, generally based upon whether the surviving joint tenant’s interest might be subject to an equitable obligation.
The general rule of thumb is that an interest in an asset as joint tenant will not pass by will, but will instead pass automatically, and irrespective of the will maker’s intention, to the surviving joint tenant. It is possible, prior to the death of a will-maker, for that person to convert a joint tenancy to a tenancy in common, and in that way enabling the interest in the asset to form part of the will-maker’s deceased estate. Again, expert advice should be taken.
Superannuation
Australians now hold vast amounts of their wealth in superannuation. As at September 2018 the total value of assets held in Australian superannuation funds was $2.8 trillion (there are 12 zeros in that number). A lot of that money will be passed on to future generations and it is vital that people know how that may be done.
The proceeds of a superannuation fund and any associated death benefits are under the control of the trustees of the fund. They are obliged to act in accordance with the terms of the deed governing the trust, and the laws governing superannuation funds and trusts. Trust deeds are complex and can often run to a hundred or so pages of closely typed text. The laws, both in the form of legislation and case law, are similarly complex. But in general, the trustee will usually either (a) pay any superannuation death benefits to a person nominated by the deceased person in a death benefits nomination (provided that certain forms and procedures are followed), or (b) have a discretion to pay out amongst a class of persons, generally defined by relation to the deceased.
The key thing to note is that the benefit does not pass by the terms of the deceased’s will except to the extent that the trustee of the superannuation fund pays the proceeds to the deceased estate. So, if you wish to dispose of your superannuation death benefit by will, you need to direct the trustee to pay those moneys to your estate. Expert advice should be taken in order to ascertain whether in your particular circumstances you can do this, how you can do it, and whether (as is often the case), it will have adverse taxation consequences.
Family Trusts
A vast amount of wealth is held in trusts (excluded superannuation funds). ATO data from 2014 suggests that the income earned on trust assets in that year alone was $340 billion. The majority of such trusts are discretionary family trusts. Assets held in those trusts do not form part of a person’s deceased estate.
Those assets are owned by the trustee of the trust, not by the will-maker. Even if the trustee and the will maker are the same person, the trustee cannot treat those assets as his or her own unless they are first transferred out of the trust (if permitted by the trust deed). When the trustee dies, a new trustee is appointed, and that person becomes the legal owner of those assets.
A person can indirectly influence what happens to those assets by passing control over the trust to a person of their choosing. Discretionary family trusts are controlled by the trustee. The appointor of a trust (if there is one) is responsible for appointing or removing trustees. It is often the case that the trust deed is expressed in such a way to empower the appointor to make an appointment of new trustee by provision in his or her will. There are various other techniques than can be followed too. But again, this is a complex area and it is important to take expert advice to minimise the chance of bringing about unintended consequences.
Company
A company is a separate legal entity which itself owns assets. The assets of a company cannot be distributed through your will. Any shares you own in the company, however, can.
Take out
The rapid increase the amount and value of non-estate assets and means that the proper consideration of these asset classes is of vital importance in considering your overall estate plan. Take expert advice and get the right results.