Where There’s A Will… Estate Planning, Wills & Powers of Attorney Observations (Copy)
Did you know?
Unless your assets and or income outside Australia are insignificant, you should consider a separate Will in each country in which your assets and or income are situated. That said, your choice of executor/trustee and beneficiaries requires careful attention to ensure the estate trust does not unwittingly become an Australian resident trust estate and that any Australian resident beneficiaries correctly inherit foreign assets and/or Australian equities at market value under Australian Capital Gains Tax “CGT rules”.
Estate Planning (A little context)
These days many people have not made a Will. And for the many people who have made a Will, real thought may not be given to what may happen much later in life. Many people make a Will simply because they got married or acquired real estate. '
There are many reasons why this is the case. Australia abolished Estate and Gift Duty in 1979 lifting forever the burden of crippling estate taxes. The principle behind Capital Gains Tax from 20 September 1985 is that “death is not a CGT event”. What happens is that inherited assets are only ever subject to CGT when a beneficiary decides to dispose of the inherited asset or the Estate Trustee sells assets to provide cash for both debts and legacies.
But for globally mobile Australians, the CGT net at date of death is cast far and wide to capture both foreign assets and Australian equities formerly held by the deceased person. The choice of a resident or non-resident Executor can also lead to early interest by the Australian Tax Office.
Of course, if you do not make a Will, the same tax rules apply and although it is not true (unless you have absolutely no relatives) that your assets or a significant part of your estate will be escheated to the government, it is true (even if you have relatives) that your assets will be distributed in accordance with a strict and inflexible statutory formula under “ageing” Australian succession State/Territory legislation.
So what should you think about when you make your Will?
As a general rule, people with substantial assets, particularly if those assets are income producing, should not leave them to one or more beneficiaries absolutely.
That will give rise to Australian income tax and awkward capital gains tax consequences which, in most cases, will not be able to be avoided by the beneficiaries.
Consider also what assets do not necessarily pass through your estate trust. Australian superannuation entitlements commonly bypass a Will by virtue of a binding/non-binding beneficiary nomination with the trustee of the relevant superannuation fund.
Where no nomination is made or the trustee declines to follow the nomination, then entitlements from your superannuation plan are paid to the trustee of your estate.
To the extent such monies are distributed to dependent beneficiaries (this includes the spouse and former spouse as well as children), the monies are tax-free to the estate.
But where not so paid, the trustee can suffer a 15% tax liability. Where the entitlements include proceeds of a Life policy held by the superannuation fund trustee over the deceased person’s life, the tax liability can be 30%.
Importantly, where you have entitlements in a foreign pension plan, the Australian tax rules in relation to Australian resident beneficiaries need to be carefully considered. You may not want to make a beneficiary nomination with the foreign pension plan trustee.
Instead, pension entitlements may be paid to the foreign trustee of your foreign Will (dependent on relevant foreign tax rules etc) for careful distribution in accordance with carefully selected beneficiaries of your foreign Will.
Your Will should be an instrument of flexibility. Where there are minor beneficiaries, assets could be left to the trustee of a testamentary trust. Essentially, a Testamentary Trust is a discretionary trust established in a Will.
The trustee will be given discretion as to the distribution of income produced by the assets and as to the distribution of the assets themselves, from time to time. This will give flexibility in two major ways.
First, income and assets can be distributed in the most effective way among your chosen beneficiaries.
Secondly, income and assets can be distributed to take account of the personal circumstances of the beneficiaries from time to time. Importantly, assets are “held back” for minors until they are of an age when they can competently deal with their inheritance.
This can also be the case for many adult beneficiaries where they can be looked after until they also pass on.
If you have faith in your executor/trustee, you can leave a letter with your executor/trustee or you can include in your Will guidelines for the distribution of income and assets as an “expression of wishes” for your trustee to follow. This approach has a lot of merit. And to make it easier, your executor/trustee need not be a professional trustee and may be for example, your spouse and or one of your adult children and or one or more of your business partners.
A few other observations from legal Advisors working with InterRetire:
Testamentary Trusts and other trust/directions included in Wills should be kept simple. (These days Courts are quite prone to regard complicated testamentary trusts and other trusts/directions as undue control “from the grave” and there is a risk that your wishes may be ignored).
Testamentary Trusts and other trusts/directions can have all of the tax and flexibility advantages mentioned above and still be short and simple.
The family home and other personal assets are exceptions. Subject to some peculiar capital gains tax rules in relation to some collectible assets it is ordinarily best for the family home and these other assets to be left to chosen beneficiaries absolutely.
It is not uncommon to leave a family home (previously solely owned by the deceased person) to children with the spouse retaining “occupation rights as a life tenant”. This may also have the advantage also of retaining the CGT main residence exemption.
If you have minor children, you have the right to nominate other people to act as Guardian of your children if you and your spouse should pass on. Although your nominations can be overturned by a Court in some cases, ordinarily, your nomination will be adhered to (so long as your nominees agree to act as Guardians).
Australians with assets and or income outside Australia
There is one golden rule.
Unless your assets and or income outside Australia are insignificant, you may wish to consider making a separate Will in each country in which your assets and or income are located.
Do not try and cover your entire estate in one Will. It is inevitable that, by doing so, your beneficiaries will incur unexpected and unnecessary duties and taxes and sometimes delays. You must obtain appropriate legal advice in each country in which your assets and/ or income are situated.
And the Will which you make in each country will be very largely determined by the tax and estate laws in that country.
General Rule
Up until 2006 there were some unsatisfactory CGT rules concerning Wills in another country containing a bequest or legacy upon your death for any part of your assets and or income to be transferred into Australia or to a resident of Australia or otherwise applied for the benefit of a resident of Australia.
Rather, in those situations, so long as it was consistent with the laws of the relevant country, assets and or income in that country could be left to the trustee of a testamentary trust and the beneficiaries of that trust, if possible, not including people who are not (and are not likely to become) residents of Australia. That may not necessarily be the case today.
This general rule has been ameliorated since 2006 by the modification to CGT cost base rules allowing Australian resident beneficiaries of a non-resident trust estate to inherit both foreign assets and Australian equities held at the time of death by the deceased person at market value. Foreign Wills should be carefully drafted with due consideration for tax and CGT rules.
Benefits of Appointing an Enduring Power of Attorney when leaving Australia
An Enduring Power of Attorney can be a useful document for Australia expatriates to put in place either before leaving Australia or while you are an expatriate.
An Enduring Power of Attorney is not only designed to enable someone else to manage your personal affairs when you become incapable of doing so (and after death), it is also useful for Australian expatriates to have someone else manage their affairs in Australia whilst they are living overseas (such as sign documents on your behalf when you are not physically present in the country to do so).
In fact this is a “must do” where an Australian expatriate couple depart Australia and retain their superannuation entitlements in a Self Managed Superannuation Fund (with the Enduring Power of Attorney executed prior to departure).
Choosing your Enduring Power of Attorney
While no one plans to get ill, the reality is that life can be unpredictable. It is possible that through either accident or illness you may become temporarily or permanently unable to make decisions yourself.
No one wants to think about these things occurring, but if it does occur you need to have someone to legally make decisions for you.
An Enduring Power of Attorney allows you to give a person of your choice the authority to make decisions on your behalf if you find yourself incapable of conducting your affairs at any time in the future.
Who should you appoint as an Enduring Attorney?
The obvious answer, appoint someone you trust. And preferably, somebody younger than yourself.
A professional Advisor such as a lawyer, friend or relative could also fulfil this role. The key criteria in your choice is who will best look after your interests.
Whoever your appoint as an Attorney must be least 18 years old, of sound mind (that is having the capacity to make decisions) and finally agree to be an Attorney.
When does it come into effect?
You can nominate that the Enduring Power of Attorney to come into effect immediately or only when or if you are incapable of making decisions.
What are the formal requirements?
All Australian States and Territories require the person making the appointment and the person being appointed to have full legal capacity at the time of the appointment. This means all parties must be over 18 years of age and have the mental capacity to make decisions.
Other formal requirements (regarding both the form and witnesses) will vary between Australian States and Territories.
What must the appointed Attorney do?
Legal duties include:
Consider your interests when making decisions as your Attorney.
Take care of your property.
Avoid conflicts of interest.
When necessary, prove that they may have been appointed as your Attorney.
Does a Power of Attorney last forever?
You can revoke your appointment of an Enduring Power of Attorney at any time. This can be done in a number of ways including revocation of the Power of Attorney
Ordinarily, a Power of Attorney ceases upon the Appointer’s death. However, an Enduring Power of Attorney will continue according to its terms beyond the death of the Appointer. This is why Australian expatriates departing Australia and who wish to retain their Self Managed Superannuation Fund need to appoint an Enduring Power of Attorney. Once a person dies, the provisions made in a Will, will decide how the estate is distributed. That said, there is no reason why the executor of the deceased person’s Will cannot also be the same person who held the Power of Attorney.
If a person dies without a valid Will, the Intestacy provisions of the particular Australian State or Territory have effect and will decide how your estate is distributed.
How InterRetire Can Help You
If you’re an Australian expatriate who is considering moving back to Australia, we can help you maximise your assets, minimise your tax obligations and help you transition smoothly.
Disclaimer: This article provides general information on avoiding double taxation in Australia and should not be considered as professional tax advice. It is recommended to consult with a qualified tax advisor or accountant for personalised guidance based on your specific circumstances.
