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PaxAnimi provides a wide range of marketing and educational documents as part of its comprehensive estate planning service.

Your simple guide to
effective estate planning

Has your client been putting off their estate planning, meaning their family misses out on the taxation benefits and risk protections ordinarily provided by an effective estate planning service?

 

Learn PaxAnimi’s solution to effective estate planning by understanding its 5 stages7 rules and 7 risks for what happens if your client loses their mental capacity or dies.

Understanding this process will empower you and your client to make informed decisions about their financial legacy and will provide them with ultimate peace of mind in knowing their family is protected when the time comes.

PaxAnimi’s effective Estate Planning Service will allow most of your clients to complete their estate planning, online.  Estate planning up to speed.  The way it should be.

Why is estate planning important for your client and their family?

Talking about and planning for loss of mental capacity and death of your client and their partner can be hard.

But estate planning isn’t just for parents and the elderly.  Everyone should have an effective estate plan in place that protects them, their family and their wealth.

Effective estate planning offers protection and peace of mind, by:

  • ensuring that your client understands the 5 stages, 7 rules and 7 risks of effective estate planning so that they can make an informed decision about everything that needs to be considered
  • determining who is to manage their assets and what is to happen with their personal care if they lose their mental capacity – also known as a power of attorney and a guardianship appointment
  • putting in place an optional testamentary trust will for what is to happen on death, ensuring taxation benefits and risk protection benefits for their beneficiaries
  • aligning your client’s estate planning to their personal and financial circumstances, ensuring the best possible outcome for your client and their family
  • providing a record of what your client has chosen to do and why on their loss of capacity and death, so that your client and their family have a point of reflection for future review, giving peace of mind and saving your client future time and cost

What happens if your client doesn’t complete their estate planning?

Ultimately, your client is leaving him/herself and their family at risk.

If your client loses their mental capacity and they don’t have a signed power of attorney and guardianship appointment:

  • even their own spouse cannot make financial and personal decisions for them;
  • an application may need to be made to a government tribunal for someone to be appointed to manage their financial needs and personal care;
  • this person may not be your client’s first choice and they may not manage your client’s affairs as they would want them managed.

Without an effective optional testamentary trust will in place, assets may not pass in the way you want and your beneficiaries may lose out:

  • your beneficiaries may pay unnecessary tax on the income from investment of the gifts you make to them;
  • your assets may be exposed to the various risks that need to be taken into account when passing assets on death.

What is involved in effective estate planning?

There are 5 stages, 7 rules and 7 risks to consider for what happens if your client loses mental capacity and when they die.

By being aware of these, you can quickly and easily develop complete estate planning, ensuring that your client’s family and their wealth gets the taxation benefits and risk protection benefits of effective estate planning in the way they want.

The 5 stages of effective estate planning

  • Stage 1 – The fact find | Your client telling you about their personal and financial circumstances.
  • Stage 2What happens on loss of capacity | Determining who is to manage your client’s assets if they lose mental capacity, also known as their power of attorney and their guardianship appointment.
  • Stage 3What happens on death | Determining the plan for what your client wants to happen when they die, including with your client’s assets.
  • Stage 4Tax and risk | If Stage 3 is about what happens when your client dies, Stage 4 is about how they want it to happen. This stage is all about showing your client how testamentary trusts and other protective measures can save tax and protect assets against the risks that need to be considered when passing assets on death.
  • Stage 5Housekeeping | Housekeeping to align your client’s personal and financial circumstances to get the best possible outcome from their estate planning.

The 7 rules of effective estate planning

The 7 rules of effective estate planning are set out below. Follow the rules unless there are reasons not to and then, make decisions to suit.

  • Rule 1 – Expectations | Manage expectations of your client’s family and beneficiaries by having the hard conversations now to avoid disharmony later.
  • Rule 2 – Answer | There is no correct answer. Estate planning is about making the informed decisions that are right for your client.
  • Rule 3 – Trust | Ensure that your client trusts the people that they give assets to and/or who will be in control of your client’s assets if they lose capacity and when your client dies.
  • Rule 4 – Shadows | Don’t box at shadows. Normally passing control of assets on loss of mental capacity and passing control and/or ownership on death happens very smoothly, so why complicate it by providing for things that are not likely to happen?
  • Rule 5 – Tax & flexibility | Keep your client’s estate planning documents as flexible as possible while allowing for tax planning opportunities.
  • Rule 6 – Years of law | Trust the process. Unless your client requires something specific, it is likely that the documents used and the provisions of them will be right for your client.
  • Rule 7 – Review | Estate planning is not set and forget. Plan based on your client’s current circumstances and revisit it every year when you do your client’s tax.

The 7 risks of estate planning and the orderly passing of wealth on death

    • Risk 1 – Spendthrift | What if an intended beneficiary is not good at managing money and you want to protect them against that?
    • Risk 2 – Special Need | What if an intended beneficiary has a physical and/or intellectual disability that means they are not able to manage their gift themselves?
    • Risk 3 – Special Need | What if an intended beneficiary develops a drugs, alcohol, gambling or mental illness problem before they take control of their gift?
    • Risk 4 – Bankruptcy | What if your client’s intended beneficiary is bankrupt when your client dies or becomes bankrupt after having inherited assets from your client?
    • Risk 5 – Betrayal | Will your client’s surviving partner change their will after your client’s death and disinherit their children or other intended beneficiary? Will they give the wealth away? Will they change the plan?
    • Risk 6 – Divorce | If your client is a couple making their wills and 1 of them dies, what happens after your client dies if the surviving partner forms a new relationship and it breaks down? Will the assets that they intend to eventually pass to their children or other intended beneficiaries be exposed in a claim by the surviving partner’s new partner?
    • Risk 7 – Death | If your client is a couple making their wills and one of them dies, what happens if the surviving partner forms a new relationship, the surviving partner dies and does not make adequate provision under their will for their new life partner? Will the assets intended for the deceased couple’s children be exposed if the new life partner challenges the will of the now deceased surviving partner?

Risk 1 and Risk 2 require special treatment if you need to provide for them and they do not form part of the standard PaxAnimi documents. If you want a solution for Risk 1 or Risk 2, further work will be required.

Risk 3 and Risk 4 are dealt with as part of the optional testamentary documentation that is part of the standard PaxAnimi documents. These protections are automatically available to you by using the PaxAnimi service.

Risk 5, Risk 6 and Risk 7 are things about which your client will make decisions as part of the standard PaxAnimi service.  The solution for the decision your client makes about each of the risks will be included in the documents.  If you want a solution other than for the standard solution, further work will be required.

Understanding your clients' options

When developing your client’s estate planning, there are a number of options to be taken into consideration.  By helping your clients to choose what is best for your client, their assets and their beneficiaries, they can minimise tax and maximise benefit for all parties involved.

Effective estate planning is a much more important task than completing a ‘kit will’ from the newsagent or a standard online will.  Without effective estate planning, your client risks missing out on the tax benefits and risk protections usually dealt with by an effective Estate Planning Service.

That’s where PaxAnimi comes in.  PaxAnimi’s innovative Screening Tool goes far beyond a standard ‘kit will’ to deliver a comprehensive, online Estate Planning Service that can replace the need for costly face-to-face legal advice of traditional estate planning and ensures your client and their family are protected in the way they want.

Standard v Simple - Which solution to choose

The Standard OR The Simple. 

Testamentary trust v no Testamentary trust? Which solution to use.

Effectively preparing for your loss of capacity and death is about much more than purchasing and signing the usual online will, power of attorney and guardianship appointment or a $100 document kit from the newsagent.

Every day you protect and care for yourself and your family.  If you want to protect and care for your family, your family’s assets and your family’s future if you lose your capacity and when you die, you need effective estate planning, which is about much more than a set of documents.

Apart from signing a carefully considered will, power of attorney and guardianship appointment, effective estate planning ensures that what you want to happen when you lose capacity or die happens in the way you want it to happen and with the maximum effect.

Effective estate planning also deals with the taxation considerations for your family and the risks to your family’s assets if you lose your capacity or die.  PaxAnimi’s innovative and unique online Screening Tool and fixed price effective estate planning service will lead you through each of these things.

PaxAnimi’s innovative and unique online Screening Tool and fixed price effective estate planning service will bring your estate planning up to speed.  The way it should be, giving you peace of mind about your planning for loss of capacity and death.

You will not get all of that by purchasing and signing the usual online will, power of attorney and guardianship appointment or a $100 document kit from the newsagent.

You can get all of that by using PaxAnimi’s innovative and unique online Screening Tool and fixed price effective estate planning service.

Risk management and our standard solution for your effective estate planning

Our standard effective estate planning service deals with risks 3 to 7 of the 7 risks to the passing of wealth on death.  If you need a solution for risks 1 and 2, you will need to discuss that with us separately.

  1. Risk 1 – SPENDTHRIFT – what if an intended beneficiary is not good at managing money and you want to protect them against that?
  2. Risk 2 – SPECIAL NEED of a beneficiary – what if an intended beneficiary has a physical and/or intellectual disability that means they are not able to manage the wealth themselves?
  3. Risk 3 – SPECIAL NEED of a beneficiary – what if an intended beneficiary develops a drugs, alcohol, gambling or mental illness problem before they take control of their gift?
  4. Risk 4 – BANKRUPTCY of a beneficiary – what if your intended beneficiary is bankrupt when you die or becomes a bankrupt after you die having inherited assets from you?
  5. Risk 5 – BETRAYAL by surviving partner – will your surviving partner change their will after your death and disinherit your children or other intended beneficiary? Will they give the wealth away?
  6. Risk 6 – DIVORCE of a beneficiary – what if a relationship of a beneficiary breaks down (including a new relationship of your surviving partner after you die or a new relationship of a child)? Will the assets that you leave them be exposed in a claim by their partner?
  7. Risk 7 – DEATH of a beneficiary – what if a beneficiary dies and their partner or children challenges their will as the deceased has not made adequate provision for their surviving partner or children? Will the assets that you intend to leave your surviving partner or children be exposed in a claim by their partner or children?

Taxation and our standard solution for your effective estate planning

Our standard effective estate planning service also does the following things for you:

  1. Gives your surviving spouse and children or other intended beneficiary tax advantages after you die in the using of the personal wealth that you want to leave to them.
  2. Gives your surviving spouse and each child or other intended beneficiary the option after you die to access those tax advantages through a tax effective and flexible trust that can come into existence on your death.
  3. Gives your surviving spouse and each child or other intended beneficiary the option after you die to access those tax advantages through a tax effective and capital protected trust that can come into existence on your death.

Further benefits of our standard solution for your effective estate planning

Our standard effective estate planning service also does these further things for you:

  1. Makes an allowance after you die that may be required to get equality between your children because during your life you have given more to one or more of them than to the others.
  2. Transfers control of your companies and trusts after you die to your surviving spouse and eventually to your children but so that a majority of your children cannot do the wrong thing by a minority of them, where decisions need to be made by unanimous resolutions.
  3. Staggers the timing for the passing of control after you die of the gifts you intend for your beneficiaries so that the beneficiaries do not get control of too much wealth too soon.
  4. Gives you the knowledge of what housekeeping needs to be done so that you can make sure that assets pass as you want and you can maximise the risk and taxation benefits of using testamentary trusts after you die.

PaxAnimi’s Simple Solution: If you don’t want the above things from your estate planning, PaxAnimi’s simple and effective estate planning solution will do what you need.

The PaxAnimi recommendation about which of its 2 services to use, the standard service and the simple service, is based on these 2 things:

Whether you ask for tax effective use of gifts you make under your will

  1. Whether you ask for your beneficiaries to be able to tax effectively use the income from the investment of any gift you make to them
  2. Whether you say you are concerned about at least 1 of the following:
  • A partner/spouse of a beneficiary getting control of a testamentary trust set up for a beneficiary
  • A partner/spouse of a beneficiary being a capital beneficiary of a testamentary trust set up for a beneficiary
  • Risk 4 (bankruptcy of a beneficiary)
  • Risk 6 (divorce of a beneficiary)
  • Risk 7 (death of a beneficiary and a challenge to their will)

If you ask for any 1 of those 2 things, the PaxAnimi recommendation will be for you to use the standard service.

If you don’t ask for any 1 of those 2 things, you must accept that your estate planning is not going to do any of the above things for you.

If you are undecided about which of our services to use, as a guide, if you have between $1,000,000 and $2,000,000 of personal wealth, the risk management and taxation benefits that form part of our standard fixed price effective estate planning service provide a very powerful estate planning solution.  That is a guide only, as amounts of up to $1,000,000 can also do that.  Those amounts include wealth that may arise from superannuation, including life insurance inside superannuation and they include wealth that may arise from life insurance from outside of superannuation.

Effective Estate Planning In Action
» a working example

There are many taxation advantages of optional testamentary trusts. Take Jack and Elizabeth Wilson for example, a financially successful married couple who decided to make their will.

The Wilson’s own $2m in shares, have $2m in cash and a NSW home that they live in which has a current market value of $5m, totalling $9m in assets.

They have a son, Tom, who is happily married to Claire with 4 children, all under the age of 18. Tom is on the highest marginal rate of tax and his wife works at home caring for their 4 children, earning no income.

On their death, the Wilsons decided to leave the whole of their estate to one another and then wholly to their son Tom, using optional testamentary trust/s.  This means that when Jack and Elizabeth die, Tom can decide:

  • What, if any, of his parents’ property he takes personally; and
  • What if any he takes through an optional testamentary trust (in whole or in part) or 4 optional testamentary trusts (in whole or in part), 1 eventually for each of the grandchildren but during Tom’s life, he is the trustee and a beneficiary of each of the trusts.

Later, the Wilsons die and after their death, the following occurs:

  • Their home is rented out and yielding 4% pa before tax
  • The $2m of shares derive fully franked dividends of $100,000 pa
  • The $2m in cash is invested in a fixed interest product with a yield of 2.5% pa, grossing $50,000 pa before tax
  • Without selling any property, there is income before tax of $350,000 pa
  • The tax free threshold before the adult marginal rates of tax apply is $18,200

The taxation advantages of a testamentary trust

1. Splitting of income

There are two ways that Tom can choose to take his inheritance:

  • If Tom decided to take all of the property personally (keeping in mind that he is on the highest marginal rate of tax of 45% without medicare) and disregard the option to use a testamentary trust, a total tax of $157,500 would be payable on the $350,000 of before tax income (before taking into account the franking credits and medicare).
  • However, if the shares, cash and investment property were taken in a testamentary trust (or 4 separate testamentary trusts), that $350,000 of income could be split equally between for example, his wife and a company beneficiary of the testamentary trust.

The total tax of $104,747 using a testamentary trust would be:

  • $52,247 for his wife; and
  • $52,500 for the company,

(before taking into account the franking credits and medicare).

That is a total tax saving of $52,753 simply by splitting the income through the testamentary trust.

Be aware of land tax.  If the testamentary trust is used, you need to take into account the land tax payable on the home both inside and outside the testamentary trust.  This would also need to take into account any other property holding of the relevant beneficiaries.

2. Concessional taxation treatment

Normally, if a child under the age of 18 receives income from a trust that is not set up under a will (i.e. a non-testamentary trust will / an inter vivos trust), non-concessional rates of tax apply after approximately the first $600 of income.

However, Australian income tax laws give a concessional taxation treatment on income of minors that is derived on an investment of property of a trust arising under a will.

In this instance, if instead of paying part of the $350,000 of income to a company, it was all paid equally to Tom’s wife and his 4 children, the total income tax would be $71,485, saving $86,015 in tax compared to the $157,500 tax if all of the $350,000 income was paid directly to Tom.

3. Streaming of income

If, 8 years after the date of the Wilson’s death, the home is sold and a $200,000 capital gain arises, income streaming could be used to eliminate the gain with no tax being payable.

As the asset (home) had been held in the trust for more than 1 year, there is only a taxable capital gain of $100,000 after the 50% general capital gain tax discount is applied.

If Tom’s wife had capital losses of $100,000, the capital gain could be streamed to the wife, resulting in no tax at all being payable on the $100,000 taxable capital gain.

This streaming example is only an example, but it shows the power of being able to stream income with different characters to different beneficiaries, which can also apply to dividends with the attached franking credit benefit.

The above things could only happen if the shares, cash and investment property were taken in a testamentary trust (or 4 testamentary trusts) instead of Tom’s name personally and the testamentary trusts have all of the required provisions in it to allow the best taxation outcome.

In summary, through considered and comprehensive estate planning, the Wilson’s were able to protect their beneficiaries and save them:

  • $52,743 in tax by splitting the income through multiple testamentary trusts including to a company
  • approximately a further $33,262 in tax by also paying income to minor beneficiaries instead of to a company
  • $100,000 by streaming income tax effectively