The advantages of constructing a Will can be endless. Further to this, the importance of a Will increases as a person’s personal and financial circumstances become more intricate. It is for such reasons, that we believe in drafting what can be referred to as a ‘Smarter Will’. Simple wills, such as those that provide only the rudimentary aspects of a person’s estate, differ greatly with regards to the estate planning content and consequences when compared with a Smarter Will.
The benefits of a Smarter Will greatly outweigh those associated with a simple will. Simple wills are not designed to accommodate for even the potential for more complicated circumstances to arise. In fact, they do the opposite, by preventing flexibility and leaving gaping holes for tax leakages. They may leave your estate exposed to creditors and predators.
Even in situations where the individual requiring a will believes that their assets are quite straightforward e.g. if all they owned was a house or an apartment, we would advise that is it still best to upgrade from a simple will to the Smarter Will. This would protect the individual’s objectives, enhancing the security around their loved ones, their assets as well reducing unnecessary tax. It is worthwhile considering a Smarter Will even if the asset pool is small. Even factors such as the intended beneficiaries’ Centrelink entitlements can be protected.
Ultimately, each individual’s facts and circumstances as it relates to their estate must be carefully considered. Therefore, the very intended idea of a simple will can be quite dangerous to the executor and intended beneficiaries.
Another essential benefit of having a valid Smarter Will is the importance of its mechanics. It is the best tool for mapping out how the individual intends to have their estate distributed upon their death, taking into account who takes guardianship of minor children and other such incidental matters. It is also important to consider Financial and Medical Power of Attorneys so that, if circumstances require it, a trusted Power of Attorney can operate finances on behalf of the individual. All of these factors clearly highlight the need to put your best foot forward and have that contingency plan in place. Failure to do so can lead to greater financial loss in both monetary and non-monetary aspects of the estate.
The Power of Income Streaming
Income streaming is a key mechanism that can be used to reduce tax. Beneficiaries who are minors (under 18 years old) within a testamentary discretionary trust are taxed like adults with the same tax rates, including the tax-free threshold. Whilst this may seem disadvantageous to the layman, given that these beneficiaries are minors, the effects are actually quite the opposite when considered against a family trust. With normal family trusts, distributions to minors are taxed at higher rates than an adult.
When a recipient in your will earns income from a gift e.g. rent on an investment property, or capital gains when they sell it, that income will be taxable. While they have children under 18 years old, that income can be ‘streamed’ to their children to take advantage of the preferential tax rates. This requires a special structure called a ‘testamentary discretionary trust’ that can only be created under a will.
Income can also be streamed to low-income-earning adults, such as full-time or part-time students, which similarly provides a valuable mechanism for reducing tax.
Below is a list non-exhaustive list of benefits associate with the drafting of a Smarter Will:
- Proper protection of assets and reduction of unnecessary tax
- Prevention of creditors and predators interfering with the protected assets
- Income streaming allows advantageous tax rates
- Foreign beneficiaries – capital gains tax (CGT) may not be triggered
- Possible protection from Family Law claims
- Power of adjustment
- Preserving beneficiaries’ Centrelink entitlements
- Providing beneficiaries more options
Upgrading to a Smarter Will can add significant funds to the value of your estate that would have otherwise been lost through avenues such as higher tax rates.
You can download a free copy of “Smarter Wills Guide and Benefits“