If you do not fully appreciate the difference between estate and non-estate assets, your estate plan may fail to pass ownership of your assets as you intend at the time of your death. Worse still taxes, levies and legal fees may simply devour the gifts you intended for those near and dear.
So here is the bottom line: Estate assets will pass under the terms of your will, but they may include less than you think they do. Non-estate assets pass under a variety of other agreements and arrangements. Your superannuation which may be significant is a non-estate asset so be very careful. This is only one of many potentially difficult situations.
However you use your will and other elements of your estate plan to pass ownership of assets, it should be informed, deliberate and up-to-date. It may be wise to get some advice.
Estate assets
Generally, estate assets include:
- Personal property, such as a car or jewellery, of which you are the sole owner;
- Financial assets, like a bank account or shares that you own solely;
- Life insurance policies, but only if your estate is the nominated beneficiary;
- Certain other interests, like partnerships or fixed trusts; and
- Real property owned either solely or as a tenant in common with someone else.
Tenancy in common or joint tenancy?
Here we need to take a side junket into a somewhat arcane area of property law: the two different ways of owning something with another person. The only real difference has to do with the way the asset is inherited on one party’s death.
Under a tenancy in common, if one owner dies, her interest will pass to her heirs through the estate. Imagine for example that you and your brother each a 50 percent interest in your late parents’ farm as tenants in common. Your brother dies, and under the terms of his will, leaves his interest in the farm equally to his 16 children. You will continue to own your half interest as a tenant in common with each of his children who will own a 1/32 interest. Tenancy in common can lead to some famously messy real estate problems, but its impact is not limited to land. Bank accounts or shares may be held under a tenancy in common as well.
Under a joint tenancy the result in the farm example would be different. On your brother’s death, his interest would pass to you. You would own the entire farm (or bank account or collection of Meissen porcelain). Spouses generally own their homes as joint tenants.
Non-estate assets
Non-estate assets generally include:
- Assets owned as joint tenants;
- Assets held in a discretionary family trust or private company in which you have an interest;
- Superannuation;
- Reversionary pensions or annuities; and
- Certain insurance policies where any proceeds are not paid to your executor/estate.
Special problems
Many of these situations require special attention. For many people superannuation now constitutes a considerable portion of their wealth. This asset passes by means of a binding death benefit nomination, but these must generally be renewed on a regular basis.
Entrepreneurs who own a business either as a sole proprietor or in a partnership must also be mindful of the need for careful succession planning. Separate and apart from the issue of how ownership of the business would be transferred on a principal’s death, it may be important to make a plan to keep the business operating and producing income during the pendency of probate.
Family and other trusts are often another important source of financial security, the details of which may be poorly understood by beneficiaries, especially several generations out.
Finally, of course, there is the simple issue of beneficiary designations which may have been appropriate in earlier years, but which have simply become out-of-date as children have reached maturity or family circumstances have changed.
The attorneys at Owen Hodge Lawyers would be happy to help you craft an estate plan or review an existing estate plan to ensure that your assets will pass as you intend on your death. Please call us to schedule a consultation at 1800 770 780.