'Many people, particularly the wealthy, have structures in place but little idea how they are set up, and therefore little idea how to protect themselves against issues that can, and do, come up over a lifetime.'

A woman once came to see me about purchasing an annuity and, to make sure I could offer her the best advice, I began asking a few questions about her financial circumstances.  She told me her income largely came from commercial properties owned by a family trust and, when I questioned her further, it turned out that she had split with her husband 15 years earlier and even though she was a director of the trustee company, her ex-husband was the sole appointor of the trust which she didn't realise.  This meant that her ex-husband was in total control of the trust.

I decided to dig a little deeper and when I saw copies of all the documents it confirmed two things that were a problem. Firstly, as he was the sole appointor of the trust, he could hire and fire the trustee, get rid of the trustee company and even install his new partner - with whom my client shared a mutual loathing.  On top of that there was no reference at all to what happens if her ex-husband died - would his new partner take control of the trust - who arguably wouldn't continue paying income to my client?  This type of example is incredibly common.

Those who own assets in a Family Trust must ensure their adviser has recently read the trust deed to make sure that the deed continues to be appropriate for the present time.

Everyone needs to ensure that they understand the nature of ownership of all of their assets and how differing forms of ownership can impact the ability to control those assets both while you are alive and upon death.

'If you own assets through a legal structure (such as superannuation or a family trust), make sure you understand exactly what it is and - just as importantly - what happens to that legal structure in the event of the death of any one of the parties.'

A general power of attorney with limited powers is usually granted to cover a specific event for a fixed period of time. For example Sam, who intends to travel overseas, may want to make a general power of attorney, and the person (or organisation) appointed as attorney can make financial decisions on his behalf while he is away. This could include selling shares or property or signing a legal agreement. The general power of attorney would normally be revoked after Sam returned.

Check that the person you want to appoint is happy to be an attorney. There is no point selecting someone who does not want to take on this role. Check whether you can appoint more than one attorney. In most jurisdictions, you can appoint more than one and they can act either:

•      jointly, where both attorneys must agree for the decision to be valid

•      severally, where either attorney may make a decision independently of the other, and/or

•      as a substitute or alternative attorney (who can make a decision if the original attorney is unavailable or no longer able to perform this role).

When can an enduring power of attorney be revoked?

In most states and territories an enduring power of attorney can be revoked upon:

•      the death of the principal or the attorney

•      revocation revoked by the principal, or by a later enduring power of attorney

•      the legal incapacity of the attorney

•      the retirement of the attorney (in some jurisdictions this can only be done with the leave of the Supreme Court)

•      the bankruptcy of the attorney and (sometimes) principal, or

•      the order of a Supreme Court judge.

As with all important legal documents there are certain other formalities to be observed with powers of attorney, which again differ according to the jurisdiction, including: who can and cannot witness, when the document needs to be registered, and whether an attorney needs to formally accept the appointment.

With regard to powers of attorney executed in other states or territories, most jurisdictions have now passed legislation recognising these powers of attorney, to the extent that the powers they give do not contradict the local relevant

Important information

This information was prepared by The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 (CML).  Any taxation information, social security information or examples are of general nature only and should not be regarded as specific advice. It is based on the continuation of present laws and rulings and their interpretation as at the issue date of this article. CommInsure is a registered business name of CMLA.

We recently provided advice to a young couple Rob and Simone who were both around 40.  They have two young children under the age of 10 and Rob has a daughter from a previous marriage who is now 20 and financially independent.

Rob was diagnosed with a terminal illness and given only a short time to live when he saw us and he wanted to ensure that his financial affairs were in the best condition they could be before his death.  Rob’s will simply left all of his assets to Simone but upon exploring the family structure it became clear that Rob’s adult daughter may seek to contest Rob’s estate which could prove costly and stressful (other than to lawyers).

This situation reinforced the need to be clear on ownership of assets when estate planning and yet we are constantly amazed at those who seek to undertake estate planning without regard for ownership.

Their assets consist of:

Asset                                                     Owner                                  Value

House                                                   Joint (Joint Tenants)       $600,000

Car                                                         Simone                                 $25,000

Superannuation                                  Rob                                        $650,000

(including insurance)

Shares                                                  Rob                                        $30,000

Unused Leave                                   Rob                                        $50,000 (after tax)

The key issue at stake was to limit the value of assets paid to the estate that could be subject to a legal contest.  We would add that prior to Rob’s ultimate death, his adult daughter openly discussed how she would like to use his superannuation monies to buy a house with her boyfriend, completely disregarding her father’s wishes.

Let’s examine what could potentially be paid into Rob’s estate and we begin by confirming that as their house is owned jointly as joint tenants, ownership will pass to Simone.  The only assets that could pass to Rob’s estate could be his superannuation, unused leave and his shares.

In order to restrict the assets paid to the estate, we ensured that Rob completed a binding death benefit nomination to his superannuation fund that directs the trustees of the fund to pay the superannuation benefit to Simone.  If this was not done, the decision about who to pay superannuation proceeds to, would be made by the trustee of the super fund.  In the event of a dispute between Simone and the adult daughter, this could lead to the trustee taking the view that they simply pay the superannuation to the estate and remove the possibility of being caught in the middle of a dispute.

Rob’s shares were sold and the proceeds paid to Simone.  The alternate course of action would have been to simply transfer ownership to Simone, but Rob wanted to sell the shares anyway.

This effectively meant that the only asset that was to be paid into Rob’s estate was his unused Leave entitlements.

Whether Rob was sufficiently insured is not for discussion in this article.  We are focussed solely on ensuring that the ownership of assets was such that they were not to be paid into Rob’s estate and subject to a legal contest.  With the exception of unused leave entitlements this has been done.

Effective Estate Planning is all about ensuring that your assets go to where you intend, in the most tax efficient manner and the most effective manner.  When planning your estate it is critical that your adviser consider the ownership of your assets in addition to your family structure.

Note: Advice contained in this article is general in nature and does not consider your particular situation or needs. If information contained is not appropriate to you at this stage please pass on to family and friends who may benefit. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.

The assets of a person who does not leave a will are distributed according to the law.  In South Australia, the following distributions apply to surviving members of the family according to Section 72 of the Administration and Probate Act 1919.

Intestacy is the legal term that refers to someone who dies without a legal will.

We have highlighted 3 of the most common situations that people may find themselves in when dealing with Intestacy and what the law stipulates about the distribution of assets owned by the deceased.

1.    Surviving Spouse but no children

All assets are distributed to the spouse or domestic partner.

A husband or wife is a lawful spouse.  A person may be determined by Court to be a domestic partner if he or she has been living in a close relationship for three years (or has a child from the relationship)

2.    Surviving Spouse and Children

If the total estate is less than $100,000, the whole estate passes to the surviving spouse or domestic partner.

If the total estate is more than $100,000, the spouse or domestic partner is entitled to the following:

a)    Personal Property (including furniture, effects and car)

b)    $100,000 and half the remaining balance

c)    Where the family home is in the sole name of the deceased, the surviving spouse has the right to purchase the home

Children are entitled to the balanced of the estate.  The share of any child under the age of majority (ie under 18 years) must be given to the Public Trustee to manage under trust.

For example a person dies without a will and is survived by a spouse and 2 children.  The assets comprise of a family home worth $400,000 owned by the deceased solely, $50,000 in investments as well as a motor vehicle and personal effects.

The distribution would be:

1)    To the spouse – motor vehicle and personal effects $275,000 (comprising $100,000 plus half the balance which is $175,000)

2)    To the children - $175,000 divided equally between them

On paper this sounds benign, but let’s examine this situation in more detail.  The key question here is how would the children’s share of the estate be funded?  They could receive the term deposit, but then would the house have to be sold in order to provide funds for the children.

The surviving spouse has the right to purchase the house, but how would that be funded.  The surviving spouse may not be employed and therefore potentially unable to secure a loan.

The death of a spouse without a will can result in the surviving spouse having to sell the family home to pay the children’s entitlements under intestacy laws.

3. Surviving Children only – no spouse

Distribution is in equal shares to the children (if a child has died and has had children, then those children take their parent’s share in equal proportion)

What about assets in joint names?

Joint Tenants

When property is owned as joint tenants, it generally passes automatically to the survivor upon the death of the other joint owner.  As a result, joint property does not form part of a person’s estate.  It cannot be disposed of by a Will or under intestacy laws.

Tenants in Common

When property is owned as tenants in common, the deceased person’s share of the property does not automatically pass to the surviving owner.  The deceased’s share of the property is distributed according to the terms of his or her Will.  If there is no Will, the deceased person’s share of the property is distributed according to the intestacy laws.

Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.  While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.  The information provided is current as at October 2011.