In Part 2 of our EP FAQ series, we address some frequently asked questions we get asked about the best-known estate planning documents of them all – Wills!
What is a Will?
Your Will is a legal document with instructions for who you want to inherit your estate, care for your children and be the executor of your estate.
What is an executor?
Your executors are the people who are appointed to carry out your wishes in accordance with your Will after you have died. Their tasks include locating your Will, identifying your assets and liabilities, obtaining ‘Probate’ of your Will (if needed), and then carrying out your wishes. This includes paying any debts, distributing assets to beneficiaries and making decisions about the sale of estate assets. It may also include establishing trusts under your Will for your beneficiaries. You can have one or more executors.
Choosing your executors is an important decision. It is important that either your executors have the necessary knowledge and time to properly perform the role or are directed to professionals who will be able to assist them.
To accept the role, an executor must be aged over 18 years and be willing and able to act.
What is a professional executor?
A professional executor is usually a trusted legal or financial advisor who can work alone as the sole executor, or jointly with one or more other executors. Professional executors offer expertise and impartiality, which can be beneficial, especially if your estate is complex or if family dynamics are sensitive.
It is possible to appoint a family member and a trusted professional adviser as joint executors.
If you are considering appointing a professional executor under your Will, you should first check with that person to ensure they will be able to accept the appointment.
It is important to note that professional executors will generally charge for their time acting as an executor. Solicitors must provide a costs disclosure to their clients before accepting the appointment as an executor.
Even if you choose not to appoint a professional executor, your executors have the ability to obtain advice from a professional. This ensures that your Estate will be administered taking into account relevant commercial, investment and taxation considerations.
Should I have more than one executor? Can a beneficiary be an executor?
There is no rule or requirement to have more than one executor. Often, couples will appoint each other as executors in the first instance and if they have children, one or more of their children as a ‘back-up’. There is no restriction on a beneficiary being an executor.
Having more than one executor can provide a ‘check and balance’, ensuring your wishes are carried out as intended. If you choose to have more than one executor, it’s wise to select individuals who you think can work well together and will have the time and energy to take on the role.
Practical considerations are also relevant. The job of an executor can be challenging and time consuming. Having more than one executor appointed will help spread the work and responsibility. Keep in mind that joint executors have to authorise all decisions made for the estate jointly – this can require multiple signatures on paperwork and joint attendances at banks and other institutions.
Another practical consideration is physical location. It can be difficult for an executor that lives overseas or travels frequently to act as executor for an Australian Will. Whilst it is not impossible, we do recommend checking with any proposed executors that are based overseas to see whether they will be able to accept the appointment. It is possible to include provisions in your Will to ensure their travel expenses are paid for out of the estate.
We always recommend that you appoint at least one ‘alternate’ or ‘backup’ executor. This ensures that you have appointed someone else to step in if one or more of your executors are unable or unwilling to act.
Specific advice about executor appointments may be needed for complex or potentially litigious estates.
What is a beneficiary?
A beneficiary is an individual or entity named in your Will to receive some or all your estate. They might receive specific assets or a portion of your wealth.
Beneficiaries have certain rights during the period where a Will is being administered by the executors. These can include:
- Right to the due administration of the Will;
- Right to request a copy of the Will;
- Right to information;
- Right to contest the will;
- Entitlement to a gift; and
- Right to receive assets.
It is important to note that beneficiary rights can be different, depending on the location of the estate.
How do I gift some or all of my estate through my Will?
Making a gift in your will involves specifying assets or sums of money that you want to leave to specific beneficiaries, whether they’re individuals, charities, or organisations.
There are two ways you can pass assets to your loved ones. You can choose to make an outright gift or use a testamentary trust.
What is an outright gift?
This means the asset becomes a personal asset of your beneficiary. Your beneficiary can then deal with the asset as they see fit. This is the simplest option, but means that the gift is not protected in the event of the beneficiary being subject to a third party claim or if the beneficiary is vulnerable.
What is a Testamentary Trust?
Under a testamentary trust, the assets pass into a special trust set up under the Will that holds the assets for the benefit of your beneficiary. Think of a testamentary trust as bubble wrap for a beneficiary’s inheritance. People who make claims against the beneficiary are less likely to be able to get their hands on the assets in the trust.
You can also implement different mechanisms to control the trust for the beneficiary. For example, you may decide that an independent trustee will control the testamentary trust until a beneficiary reaches a certain age or indefinitely if the beneficiary is vulnerable. Asset protection is a major advantage of utilising testamentary trusts.
From a tax perspective, the income and gains from the assets in the testamentary trust can be spread across different beneficiaries. Any distributions of income from a testamentary trust that minors receive are taxed at marginal tax rates, meaning that minor beneficiaries get the benefit of the tax-free threshold.
A testamentary trust can allow you to protect your wealth, keep your assets in your family line, give assets to your beneficiaries over time, reduce and spread the burden of tax.
What if I have assets outside Australia?
If you have assets outside Australia, it’s crucial to ensure your estate planning covers these assets and adheres to the laws and regulations of the respective countries. Some countries will not recognise Australian estate planning documents and others may require additional steps to be taken before Australian documents are recognised. You should consult a lawyer in the any other jurisdictions where you own assets, to ensure that you have appropriate estate planning documents based on local laws.
How do I control who looks after my children?
To ensure your children are cared for by someone you trust, you can nominate a Guardian in your Will. This individual will assume responsibility for your children’s well-being in the event of your passing.
If you have nominated a guardian in your Will, and they consent to act, then things will hopefully run pretty smoothly. However, if you have not given a direction in your Will, then things can quickly become complicated and stressful for your children and wider family. To start with, someone will need to step forward and apply for the legal authority to act as guardian for your children.
If you have parenting orders in place through the family court, then an application will need to be made through the family court to have someone else appointed to care for your children.
More questions about your estate planning?
Check out the rest of our EP FAQ series:
- EP FAQ Part 1: What is estate planning and what do you need to consider?
- EP FAQ Part 3: Challenges to a Will
- EP FAQ Part 4: Financial Decision Making and Medical & Lifestyle Decision Making
- EP FAQ Part 5: Estate Administration
- EP FAQ Part 6: Super
The information contained in this post is current at the date of editing – 25 September 2023.