Estate Planning FAQ

Who can be an executor?

Individuals, Public Trustee or trustee companies established by statute to act as executors may be an executor of an estate.

What should I consider when selecting an executor?

The choice of an executor is one of the most important decisions when making a will. When selecting an executor, you should consider the following:

  • Will your proposed executor accept the appointment?
  • Is your executor likely to be alive and legally competent at your death?
  • Is a familiarity with your family circumstances important?
  • Is it preferable that the executor is independent of your family group or vice versa?
  • Does your executor have the requisite skills that will allow them to manage your affairs after your death?
  • Should you appoint Public Trustee or a trustee company as an executor?
  • Should you appoint a solicitor, accountant or some other professional person as an executor?
  • Do you believe that your executor will act independently and impartially in the discharge of his or her duties?
  • Do you think that your executor will discharge his or her duties honestly and prudently?
  • Should you appoint more than one primary executor?
  • Should you appoint substitute executors in case one or both of your primary executors is unable or unwilling to act as an executor?

Who should I appoint as an executor?

It is far more usual than not for a spouse to be appointed as the sole executor in the first instance, although this situation changes the older people get, for obvious reasons. Apart from a spouse, who you may appoint as your executor depends on your personal circumstances and will vary from case to case. However, the following may assist you:

  • You will be more likely to appoint a family member the more:
    • that person is respected and trusted by you and, preferably but not essentially, your (other) beneficiaries;
    • competent that person is to perform the duties of an executor;
    • likely that person is to be alive or otherwise capable of acting as an executor at your death;
    • harmonious your family situation is;
    • uncomplicated and straightforward your estate is likely to be (noting that your executor(s) can always obtain professional advice if and when required);
    • unlikely it is that there will be a challenge against your estate.
  • You might be more likely to choose Public Trustee/a trustee company over an individual if:
    • you have no family members, friend(s) or trusted advisor(s) who are suitable for the role;
    • your family is likely to be divided over the administration of your estate;
    • your estate is relatively complicated (noting again that your executor(s) can always obtain professional advice if and when required);
    • the administration of your estate is likely to continue for a significant length of time (if, for example, there are young children who are beneficiaries) and you are concerned that your executor(s) may not live to complete the administration of your estate;
    • you simply wish to have an independent entity administering your estate;
    • you are not concerned that the cost of administering your estate is likely to be greater.

Should I choose more than one executor?

One executor is all that is required by the Probate Court to obtain probate. However, willmakers often prefer to have more than one executor for their own reasons.

The downside of choosing more than one executor is that, with more than one executor, there is the possibility of disputation, even stalemate, between those executors, the resolution of which may be time consuming and costly, in particular if a court order is required.

A downside of choosing only one executor is that, should that executor be unable or unwilling to act at your death, there is no other person in place who can act. This difficulty can be overcome by choosing one primary executor and a secondary executor who will act only if the primary executor cannot or will not act.

Some people feel uncomfortable appointing only one executor, particularly if that person is also a beneficiary, because they are concerned that that executor may favour themselves or others over other beneficiaries. If this concern exists, it is appropriate to ask whether this person should act as an executor in the first place. Having trust in your executor to do the right thing is critical. In any event, the executor is duty bound to act in the best interests of all beneficiaries. If an executor breaches those duties, he or she can be called to account for doing so.

Having said that, if you have a self-managed superannuation fund, your executor may become the trustee of that fund on your death. If so, your executor may distribute assets from that fund directly to themselves, leading to them attaining a much larger share of your assets than other beneficiaries.

Provided that the trust deed of the self-managed superannuation fund permits it, this difficulty can be overcome by you making a written binding nomination requiring the trustee of that fund to distribute your superannuation death benefits as you direct. Your sole executor would therefore, in this circumstance, have no discretion in this regard.

It is also important to give consideration to assets in a family trust, which assets do not form part of a deceased estate. In this context, it is important to deal with the issues of who will be the trustee and appointor of that trust after your death. Specific provisions in the will can overcome concerns about a sole executor making decisions with respect to trust assets which may benefit them to the detriment of others.

Of course, it is sometimes difficult to appoint only one executor when there are others who could equally be considered for that role. This happens most frequently with parents with more than one child, particularly in blended families.

In summary, the default position should be to nominate only one primary executor and one substitute executor unless there is a good reason to appoint more than one primary or substitute executor. As to what constitutes a “good reason”, this is often a value judgement in each case. If the default position is to apply, consideration needs to be given to securing other assets, such as superannuation death benefits and assets in family trusts.

What is the difference between an executor and a trustee?

In a will, the executor and trustee are most often the same person. The executor ensures your wishes are carried out in accordance with your will. The trustee looks after the estate assets on behalf of the beneficiaries of the will, sometimes in trusts that continue after the administration of the will has been completed (such as for infant beneficiaries until they reach a certain age).

What tasks will an executor carry out?

The executor named in your will must carry out the following tasks:

  • Settle any outstanding debts
  • Collect any money owing to you or other income
  • Where required, obtain probate of the will
  • Make arrangements to claim any life insurance you may have had
  • Arrange for any assets to be sold, if required
  • Distribute the assets as per your instructions in your will

Why is obtaining probate necessary?

Probate is necessary when the executor needs to prove to a third party that he or she is lawfully authorised to administer the estate.

Probate is most commonly obtained because an entity holding an asset (such as a bank or creditor) requires evidence that they are dealing with the legal personal representative of the estate. If an asset is handed over to the wrong person, the person handing over the asset could be held liable. However, banks will generally release monies in accounts provided it does not exceed a certain threshold.

Probate is also required by bodies responsible for the registration of assets, such as the Lands Titles Office with respect to land.

If there is a dispute regarding the will or the estate of the deceased generally, probate will also be required.

However, probate may not be required if assets can be called in and transferred to beneficiaries without producing probate. Probate will also not be required when property (land, bank accounts, shares, etc.) is held in joint names as the property will automatically transfer in law to the surviving joint owner upon the death of the other joint owner, although some steps may need to be taken to practically effect that transfer.

At times, such as when a will is challenged for authenticity or because there are concerns about the testamentary capacity of the willmaker, the process can become very complicated and drawn-out.

Probate provides the executor with certain legal protections in administering the deceased estate. Even if a person is named as the executor in a will, that person must be careful as to how much he or she does with the deceased estate before receiving probate. It may be, for example, that a new will surfaces, in which case the executor of the previous well may be at risk if what he or she has done prejudices the administration of the estate in accordance with the newly uncovered will.

How hard is it to obtain probate?

Generally, obtaining probate is not a difficult process for a legal practitioner with experience in the area. However, at times, such as when a will is challenged for authenticity or because there are concerns about the testamentary capacity of the willmaker, the process can become very complicated and drawn-out.

For the layperson, obtaining probate can be problematic, particularly if there is any unusual issue needs to be dealt with. A person wishing to do so may find assistance on the various relevant court websites.

To whom is an application for probate made?

To the Probate Court, which is a division of the Supreme Court.

What are the advantages of a testamentary discretionary trust?

All willmakers should consider a testamentary discretionary trust, especially if they have young children or significant assets.

The potential benefits of using such trusts include:

  • the possible protection of inherited assets in the event that a beneficiary becomes bankrupt;
  • the possible exclusion of inherited assets from a property settlement in the event of a marriage or de facto relationship break down;
  • separating the control of assets from a beneficiary who is unable to properly manage his or her own affairs (as a result of an intellectual incapacity, drug addiction, gambling addiction, etc.) or who may be subject to undue spousal pressure;
  • taxation advantages arising from the ability to split income amongst the family group, particularly if there are infant beneficiaries, because they will be taxed as adults on such distributions (unlike inter vivos trusts [link to inter vivos definition in Estate Planning Glossary], where infant children are taxed at penalty tax rates);
  • long-term protection for infant and intellectually disabled children;
  • being able to distribute unequally amongst beneficiaries, for example making a greater distribution to a beneficiary with special needs than to a spendthrift beneficiary;
  • creating multiple testamentary discretionary trusts, each tailored to the needs of their intended beneficiaries;
  • the long-term maintenance of critical assets for many generations along the willmaker’s bloodline.

What are the disadvantages of a testamentary discretionary trust?

The creation of a testamentary discretionary trust Will is generally more expensive, particularly when drafted by a solicitor. Trustee companies may draft a testamentary trust Will on a cheaper basis if they are going to be the trustee of the testamentary trust created by the Will they are drafting, for which service they will, of course, charge a fee. This will, therefore, ultimately be an additional cost with respect to the operation of the testamentary trust.

A testamentary trust will be a separate entity and will therefore pay tax on that basis. Therefore, there will be accounting fees associated with the operation of a testamentary trust that might not otherwise be occurred.

Investment in the management of the monies in the testamentary trust might also incur a fee, although one might expect that these assets might need to be managed whether they are in the trust or owned outright.

One cannot add external capital to a testamentary trust over and above that which was placed in the testamentary trust as a result of the operation of the will. However, income earned by the trust can be capitalised in the trust (there may be taxation implications in doing this) and the trust can borrow money.

As with all trusts, they can often become unwieldy and difficult to manage with the passing generations.

Asset protection through a testamentary discretionary trust

People in high-risk occupations such as lawyers, doctors, business owners, and financial advisers, may have put in place asset protection strategies that might be threatened by an inheritance. Such strategies include separating the high risk individual from assets that might otherwise be made available to creditors in the event of a bankruptcy. So, for example, the matrimonial home may be put into the hands of a spouse who is not at risk.

For obvious reasons, such high risk people would probably prefer not to receive inherited assets in their own name.

What are the tax benefits of a testamentary discretionary trust?

Distributions to resident minors from an inter vivos discretionary trust are taxed as follows:

Income Tax rates for 2017–18 income year
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $87,000 $3,572 plus 32.5c for each $1 over $37,000
$87,001 – $180,000 $19,822 plus 37c for each $1 over $87,000
$180,001 and over $54,232 plus 45c for each $1 over $180,000

* The above rates do not include the Medicare levy of 2%. The temporary budget repair levy ceased applying from 1 July 2017.

# Source: ATO website

Income derived by minors via a testamentary discretionary trust, however, is assessed at individual adult tax rates. Those tax rates for 2016/17 financial year are as follows:

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000
$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 45c for each $1 over $180,000

# Source: ATO website

So, to an example of the difference this makes:

Example 1:

Julio is 10 and is a discretionary beneficiary of his parent's family trust. He receives a distribution of $15,000 from the trust. Applying the tax rates referred to above, Julio is taxed $7040.91 on his $15,000 distribution, leaving him with $7959.09.

Example 2:

Paula is also 10. She also receives an income distribution of $15,000, but this time from a testamentary trust. Paula's tax on this distribution is nil, leaving her with her full $15,000 distribution.

Who should be the beneficiaries under a Testamentary Discretionary Trust?

This is a matter of personal choice, but often a willmaker will chose a more limited range of beneficiaries in a testamentary discretionary trust than they would in an inter vivos discretionary trust. The beneficiaries entitled to the capital of the trust fund will generally be close family members of the willmaker. Income beneficiaries may also include spouses or wider family members of the willmaker. This is done to ensure, as far as possible, the continuing ownership of the willmaker’s estate by his or her lineal descendants. These trusts are sometimes called lineal descendant testamentary discretionary trusts.

Having said this, there is no legal reason why the beneficiaries of a testamentary discretionary trust should not be as wide as an inter vivos discretionary trust.

The trust deed of a testamentary discretionary trust may strictly control the ownership and management of the trust fund, particularly certain crucial assets, so as to ensure their continuing development and to benefit later generations. These testamentary discretionary trusts are sometimes called bloodline trusts.

What is the difference between an inter vivos discretionary trust and a testamentary discretionary trust?

A testamentary discretionary trust is similar to a trust commonly known as a family discretionary trust or an inter vivos discretionary trust. Inter vivos simply means made “during the course of life”. Therefore, an inter vivos discretionary trust is a trust made during life, and a testamentary discretionary trust is a trust made in a testamentary document such as a will which becomes effective on one’s death.

Do I need a will?

Everybody over 18 years of age who has, or may have at their death, assets of any substance should make a will. If you die without making a will, you will die intestate and your estate will be divided according to a statutory formula. This may not be consistent with how you would like your estate to be left.

It is of particular importance to have a Will if:

  • you want to leave particular assets to particular people;
  • you want to leave particular sums of money to particular people or charities;
  • you want to ensure that certain people will receive, and perhaps that others will not receive, your residuary estate after your death;
  • your personal situation is complex (for example, you have children from previous relationships or children with disabilities and / or other significant life issues) and / or you want to engage in more complex estate planning (such as a life interest, a right to occupy or the maintenance of a particular asset);
  • you want to appoint a person of your choosing to act as your executor;
  • your estate could benefit from certain tax planning measures (such as testamentary discretionary trusts and / or capital gains tax planning);
  • you have certain requirements with respect to the disposal of your body after your death and your funeral arrangements generally;
  • you would like to nominate someone in particular to be the guardian of your infant children after your death;
  • you are the appointor of a family trust and you wish to pass that power of appointment on to another.

What if I don't have a will?

If you die without making a Will, you die intestate. In this situation, your assets will be distributed according to a statutory formula, not according to your specific wishes.

The person or persons who will assume the responsibility for distributing your assets in this way will be those who have priority to do so under legislation. Therefore, this decision will also be one that you do not make yourself.

What happens to my Will if I get divorced?

A Will you made before becoming divorced will be valid at your death but it will be read as if your divorced spouse had died before you, unless you specify otherwise in your Will.

What happens to my Will if I get married?

Unless you specify in your Will that it has been executed in anticipation of your marriage, your marriage will invalidate any previous Will you have made.

How often should I review my will?

You may change your Will as often as you wish. It is wise to review your Will regularly (say, every three years), but in particular when your personal circumstances change, whenever that may be.

Events that will or might require changing your Will include:

  • your engagement or marriage;
  • the death of a beneficiary or an executor;
  • the birth of a child or grandchild;
  • a substantial change, either positive or negative, in your financial circumstances;
  • a substantial change in the mix of your personal assets (such as the sale of a business interest or the family home);
  • the change in the personal circumstances of a beneficiary, such as a marriage (particularly if problematic), a divorce, an estrangement with you or the development of mental illness, alcoholism or drug addiction;
  • taking on different employment, becoming unemployed or retiring;
  • moving assets overseas;
  • winding up a family trust;
  • moving into the pension phase with respect to superannuation;
  • beginning to engage in a high risk activity;
  • beginning to suffer from a medical condition that will have a significant effect on your life and, or, that may hasten death.

How do I make a will?

There are a number of alternatives.

You can write your Will yourself. If you are contemplating doing this, you should be aware that a Will is a complex legal document, possibly one of the most important you will ever sign. It must be clear, concise, and unambiguous. There are also important formalities required to ensure that a Will is legally valid. Those unfamiliar with legal drafting, particularly of Wills, are likely to make a mistake in drafting their own Will that could have serious consequences.

You can use a DIY Will kit. Whilst this is a more supported option, the chances of making a mistake are still high, as evidenced by the number of cases before the courts arising from disputed DIY Wills.

Have a solicitor draft your Will. This is certainly a good option, particularly if you chose a solicitor who is experienced in this work, as opposed to a solicitor, perhaps a junior solicitor, who does Wills on a part-time basis. This might be expensive, depending on who you go to and how much technology they use to produce your Will.

Use artificial intelligence such as Ailira to help draft your Will. Ailira can draft Wills efficiently and quickly, and if necessary can work with a solicitor to ensure that the Will is tailored to your circumstances.