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Strategy 2: the wealthy nuclear family

Setting the scene:

  • Phil and Claire are married.
  • Their children Haley, Alex and Luke are all minors.
  • All their assets are both solely and jointly held and include a thriving real estate business, a house, bank accounts and motor vehicles - total value $5,000,000.
  • Phil has $500,000 in a self-managed superannuation fund. He also has $500,000 life and TPD cover through the fund.

Issues for Phil and Claire to consider:

Issue Options Instruction
Personal representatives

Who to nominate for the important role of executor and trustee in the event they both die. Consider alternatives

Nominate each other at first instance then Jay and Mitchell jointly as alternatives

Are executors/trustees to be paid? No payment
Guardian for children

Consider nominating in the will a guardian for the children

Consider including wishes regarding upbringing, schooling etc

Consider including powers regarding accommodation for guardians, purchase of motor vehicle etc

Will guardians be paid?

Appoint Jay and Gloria as guardians

Clients don’t want to include wishes, powers or payment

Nominating beneficiaries Outright gift to each other or via testamentary trust? To each other via testamentary trust
What if the other predeceases?

Need for education trust? The children currently have different education needs. For example, Haley has almost completed school; Alex is a couple of years behind her; and Luke a couple of more years behind. Should the wills set up an education fund to pay school expenses to treat beneficiaries more fairly and avoid one person’s inheritance (eg Luke’s) being eaten up by school/university fees?

Yes, set up education trust for
$500,000 (takes effect before children’s
testamentary trusts are established)

Important to provide vesting date for
trust (eg earlier of Luke attaining 23
years or all children ceasing education)
and direct what will happened on that
date (eg distribute in line with residue as
if willmaker had died on vesting date)

Gift-over to children? Yes, to children equally
Outright or testamentary trust? Testamentary trust (TT)
At what age? At age 28
What if a child predeceases or dies before age 28? Consider need to provide for grandchildren

If deceased child is survived by a child (or children), that child (or those children equally) to receive, via testamentary trust, at 21 years, the inheritance the deceased child would have received, via a testamentary trust, had they survived and attained 21 years

If deceased child is not survived by a child or children, the inheritance the deceased child would have received, via a testamentary trust, to pass to the testamentary trusts for Phil and Claire’s remaining children

What if they all die? If the family all die together (or no child survives and attains 21 years) who do they want to benefit from their estate? Half to Phil’s siblings, half to Claire’s siblings
Other issues for discussion Should Phil make a binding nomination/direction for his superannuation fund? Discuss with client
Is there a need to include superannuation proceeds trust and equalisation clause in will? Yes, include super trust/equalisation clauses
  What will happen to the real estate business on Phil’s death? Has a strategy been put in place to enable it to continue to operate if Phil died or became incapacitated? Is key-man insurance required? Is there a business partner and should they enter into a buy/sell agreement? Some issues may or may not be dealt with by will
  Is Phil’s insurance cover adequate? Does he need income protection cover and should this be held personally or in the superannuation fund? Discuss with client
 

Should Claire take out insurance cover?

 

Phil's stratregy might look like

Phil dies and … Personal representative Custodial guardian Distribution of estate
Claire survives Claire n/a Claire
Claire predeceases and one or more of Haley, Alex and Luke survive and attain 28 years Jay and Mitchell Jay and Gloria

GloriaEducation trust: $500,000Terminate on specific date (eg Luke reaching age 23) or event (eg all children ceasing education)

On termination, remaining funds to residue (as if Phil died that day)

    1/3 of balance to TT for Haley if she survives and attains 28 years. If not, then: 1/3 of balance to TT for Alex if she survives and attains 28 years. If not, then: 1/3 of balance to TT for Luke if he survives and attains 28 years. If not, then:
If Haley leaves a child or children who survive and attain 21 years, to that child or children equally via individual TT(s) Otherwise, add to Alex and Luke’s TTs If Alex leaves a child or children who survive and attain 21 years, to that child or children equally via individual TT(s) Otherwise, add to Haley and Luke’s TTs If Luke leaves a child or children who survive and attain 21 years, to that child or children equally via individual TT(s) Otherwise, add to Haley and Alex’s TTs
Claire predeceases and no child or grandchild of Phil’s survives and attains 28/21 years Jay and Mitchell Jay and Gloria ½ to Phil’s siblings ½ to Claire’s siblings

 

Note: “survives” means survives willmaker by 30 days; “predeceases” means fails to survive willmaker by 30 days.