Where there’s a will, there’s a way – familiar with that saying? Well in Estate Planning we like to say that where there’s a Will (in the physical sense), there’s a simple way to distribute assets, but only the assets which form part of a deceased’s estate (estate assets). Assets which do not form part of a deceased’s estate (non-estate assets) cannot be disposed of via a Will and can consequently complicate asset distribution quite significantly upon death if they have not been planned for appropriately.
What are estate assets?
As a broad rule of thumb, estate assets include sole legal ownership of any of the following:
- real property, e.g. real estate and land
- unproductive property, e.g. motor vehicles, jewellery, furniture
- cash of any kind, e.g. savings and term deposits
- intangible personal property, e.g. stocks, business ownership and digital assets, and
- intellectual property, e.g. patents, copyrights and royalties
What are non-estate assets?
On the other hand, non-estate assets are assets which the deceased did not have legal ownership over at the time of their death or had joint ownership with another party. Examples of such assets are discussed below.
Jointly owned assets
If co-owners of property hold the property on title as joint proprietors, upon death the jointly owned asset will pass automatically to the surviving proprietor. This will happen regardless of what is written in a Will, as technically the proprietors have an identical 100% interest in the property.
The only way for the asset to be legally dealt with in a Will is for the deceased to have severed the joint proprietorship prior to death and consequently be found to hold the property as a tenant in common. For example, if a will maker owns property with another as tenant in common in equal shares, then upon their death 50% ownership of that property flows to the estate and then to the will-makers beneficiaries as set out in their Will.
Discretionary/family trusts which are controlled by the deceased do not automatically form part of a deceased’s estate. This is because they are owned by the trust and considered a separate legal entity.
The only way for a trust to be dealt with under a Will is if it has been written into the trust deed. The trust deed needs to allow for the control of the trust to be passed on under a Will, and unless this occurs the trust will be continued to be managed by whoever the deed nominates.
A deceased does not directly own the assets of a company it is the director of, as companies like trusts are considered separate legal entities. The only exception to this rule are any shares held within a company.
Most life insurance policies are structured to keep the policy separate from the holder’s estate so to ensure the funds are not to be vulnerable to a Family Provision claim should one eventuate after death.
Consequently, the policy will be paid directly to whoever the insured person has nominated as the beneficiary of the policy, bypassing/overriding whatever the deceased has written in the Will.
If the deceased did not stipulate who is to benefit, then the proceeds will still not automatically pass through the estate as the proceeds are owned by the fund. The fund in such circumstances have complete discretion where to distribute, so long as they abide by the the terms of the fund deed.
The only way for a life insurance policy to definitely form part of the deceased’s estate is if the deceased has directly nominated their estate as the beneficiary of the policy.
Superannuation monies are tied to superannuation which has a trustee who decides on where to distribute the payments. Thus, like life insurance policies, superannuation funds act as separate legal entities and do not automatically form part of a deceased’s estate.
Again, not dissimilar to life insurance, the only definitive way for superannuation to be dealt with via a deceased’s Will is if a binding death benefit nomination form has been completed and the fund holder has stipulated for the estate to benefited.
So, where to from here?
As you can see, assets which form a significant part of your clients net wealth may not automatically form part of their estate. To avoid mistakes in the future, we strongly recommend your clients consider your succession plan today.