In our legal practice, we see families with carer responsibilities and of reasonable wealth wanting to establish special arrangements on their death to ensure that support continues to those that they care for.
Gifting your estate absolutely is not ideal for dependants who are unable to look after their own financial affairs. Our clients are typically concerned with ensuring that their wealth is preserved to provide long term assistance and in a way that does not affect social security entitlements such that those they provide care for are in a worse position.
Some strategies that we find have assisted include:
Building in flexibility – While you can predict to some degree what your financial situation might be when you die, it is more difficult to predict the circumstances of your beneficiaries and also the tax and social security regimes in place. Therefore giving your executors a range of options provides flexibility in how financial support can be structured from your estate.
Advisory team – It is not necessary for your executors to have all the legal and financial skills to assess the options, but it is desirable that they have access to a team who know your affairs and can support the executors and trustees in their decision-making with good advice. This team of advisers for financial decisions can be included in your will. It is also desirable to include a role for technical assistance on the legal aspects for your executors and trustees in case any conflicts or problems arise.
Different types of trusts and income streams – The establishment of a Special Disability Trust is a good option for many clients, as is the establishment of a testamentary trust that gives the trustee access to income and capital for the benefit of the beneficiary. Trust structures can be used to provide funds for the maintenance, advancement and benefit of the beneficiary without giving income directly to them. This retains some control over how the income is used by the beneficiary and how it will be assessed for social security purposes.
A pension from a superannuation fund is also an option where the person you care for is a financial dependant. Additionally, your estate could also be used to purchase an annuity to provide an income stream. With so many options, it is important for your executors and trustees to obtain good advice before making any decisions on the appropriate structure.
Choice of trustee – Many clients feel more comfortable appointing a trustee who has a genuine, affectionate regard for the beneficiary such as a family member or friend. A good advisory team means that this person does not need any particular skills or qualifications but is someone that you could trust to make good decisions in the best interests of the beneficiary after considering advice from your advisers. It is also a good idea to appoint joint trustees who will be able to support each other if difficult decisions need to be made.
While public and private trustee companies are always an option and will be a good solution for some, we find that the fee structure and loss of control over investment decisions make them less attractive for many of our clients.
The law in this area is complex and families should seek specialist advice to develop a plan that will reflect their intentions and be of optimal benefit to those cared for, without creating unintended consequences.
Top 5 tips
- Give the executor the flexibility to determine the optimum structure for the dependant beneficiary.
- Build into your estate planning a team structure of financial and legal advisers to support the executors and trustees.
- Consider a trust structure established in your will that protects the capital of the trust but allows income to be used to support the beneficiary.
- Plan for a trustee or trustees who have a relationship with the beneficiary.
- Plan now. The structures do not have to be established in your lifetime but a plan should be formulated so that your wishes will have effect.
Claire Williamson is a Solicitor, Estate Planning at PricewaterhouseCoopers in Sydney.