Estate Planning and Trusts

Overview

Estate planning in Australia is frequently misunderstood as the process of writing a will. A will governs the distribution of your estate, but a significant proportion of Australian wealth does not pass through the estate at all. Superannuation benefits, jointly held assets, and assets held in trusts are all governed by different rules, and without coordinated planning across all of them, the intentions expressed in a will can be undermined.

Details

Peter White Financial Planning provides estate planning advice from Level 57, 25 Martin Place, Sydney CBD. Peter advises on the financial planning dimensions of estate planning and coordinates with the client's solicitor and accountant to ensure the advice is properly integrated with the legal documents.

Additional Information

Superannuation does not automatically form part of the deceased estate. How super benefits are paid on death depends on whether a valid binding death benefit nomination is in place, whether the nomination directs the benefit to the estate or to dependants directly, and whether a reversionary pension election applies. Death benefits paid to dependants are generally tax-free. Benefits paid to adult non-dependant children attract tax on the taxable component of the benefit, which can represent a material sum for clients with large superannuation balances.

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Testamentary trusts are established through the will and come into existence on the death of the testator. They offer income splitting across beneficiaries, which can reduce the overall tax paid on investment income generated by the estate. They also provide asset protection for beneficiaries who may be in relationships that subsequently break down, who have creditor exposure, or who are not yet ready to manage a significant inheritance directly. Peter advises on the financial rationale for including a testamentary trust in the estate plan, leaving the legal drafting to the client's solicitor.

Further Details

Family trusts established during the client's lifetime can hold investment assets and provide flexibility in distributing income to beneficiaries in lower tax brackets each year. They offer a degree of asset protection and can be useful in business succession planning.

Overview

Intergenerational wealth transfer requires coordination across superannuation death benefits, trust structures, capital gains tax implications, and investment structures. Peter works with clients on strategies that preserve wealth through transitions and ensure dependants are provided for according to their intentions.

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Frequently Asked Questions

Estate Planning and Trusts5

No. Superannuation is held in trust by the fund trustee and does not automatically form part of the deceased estate. Without a valid binding death benefit nomination, the trustee has discretion over who receives the benefit and in what form. Even with a nomination, the direction of the benefit to the estate versus directly to dependants affects the tax outcome. Peter White advises on how to structure superannuation death benefits to ensure they reach the intended recipients in the most tax-effective way.

A testamentary trust is a discretionary trust established through a will that comes into existence on death. Assets from the estate are distributed into the trust rather than outright to beneficiaries. The trust provides income splitting across beneficiaries and offers asset protection against relationship breakdown, creditors, or future legal claims. They are most relevant for clients with minor children, significant assets, or adult children whose circumstances make an outright inheritance inadvisable.

Superannuation does not pass through the will. The tax treatment of death benefits depends on whether the recipient is a dependant under the superannuation legislation, the proportion of the benefit that is taxable versus tax-free, and whether the benefit is paid as a lump sum or pension. For clients with large super balances, the difference between an optimised and an unoptimised estate plan can amount to tens of thousands of dollars in unnecessary tax.

A family trust is established during the settlor's lifetime and is operational from the point of establishment. It can hold investments, business assets, or property and distribute income to beneficiaries each year. A testamentary trust is established through a will and does not come into existence until death. Both provide income splitting and some degree of asset protection, but they serve different purposes in an estate plan.