When you die, everything you own will go into your deceased estate unless it doesn’t. Sorry, not very helpful. We know.
What Goes Into Deceased Estates
Let’s do a quick quiz.
You and your spouse own your $3m family home as joint tenants. You have an SMSF with a total superannuation balance of $2m. You are an individual trustee and beneficiary of a family trust with assets of $5m. You have a $1m share portfolio in joint names. You have a $2m life insurance policy on your life with your spouse as the beneficiary. You have $1m extra cash parked in a joint term deposit with your wife. And you have $1m in an offshore company with bearer shares.
You have an accident and are no more. How much will go into your estate?
You will probably think $15m. That is a nice round number. But the correct answer is Nil. Your estate will be zero.
Let’s look at why that is. But please take the following as a rough guide only and discuss the details with your lawyer. What goes into your estate is a matter of law and we are no lawyers.
Everything Unless Excluded
Everything you own at the time of death goes into your estate unless it is excluded. Sounds straight forward enough. But the devil is in the exclusions.
Superannuation
Superannuation does not automatically become part of your deceased estate and hence is not subject to the terms of your will. Instead the trustee has to follow the SMSF trust deed, any BDBNs, SIS Act, SIS Regulations and then of course there is still the trustee’s discretion for any gaps in all this. The exercise of their discretion just needs to be ‘fair and reasonable’.
So either way, your super is not necessarily part of your estate. And whether it is or not has nothing to do with your will. But will depend on all the things listed above plus the trustee’s discretion on what they see as fair and reasonable.
Family Trust
Assets held in a family trust do not become part of your estate. A family trust is a discretionary trust so you as a beneficiary don’t have any proprietary interest in its assets.
And as an individual trustee you might be the legal owner of the assets but you don’t have beneficial ownership.
Property Held as Joint Tenants
When you bought the family home, your solicitor will have asked you whether you wanted to buy the property as joint tenants or tenants in common. Didn’t real seem to matter much at the time. But it does when you die.
Since you own the property as joint tenants, your surviving spouse will automatically receive your interest in the property. So your share doesn’t go into your estate. It goes to your spouse. When your spouse dies, it will go into their estate since they will be the last surviving joint tenant.
Life Insurance Payouts
Life insurance payouts go directly to the nominated beneficiary and don’t become part of the estate. Life insurance payouts are not even required to be used to pay the debts of the estate.
Joint Bank Accounts
The principle of survivorship applies to a joint bank account. So whoever outlives the other joint account holders gets the balance. So the term deposit passes in its entirety to the surviving joint account holder, your spouse. This principle of survivorship is entrenched in Australian common law.
Shares in Joint Names
When you hold shares together, you either hold the shares as joint tenants or tenants in common. Most share trading accounts are set up as joint tenants and hence are held in survivorship. So after the accident, your spouse will hold 100% of the shares. The shares don’t become part of your estate.
Bearer Shares Not in the Executor’s Possession
If you have assets hidden away in a tax haven, they are probably sitting in an international business company with bearer shares. Why would you do that? Maybe you wanted to protect them from creditor claims or from a former spouse.
Whoever holds these bearer shares, owns the company. So if the executor doesn’t get their hands on these bearer shares, maybe because somebody else was quicker, then the assets in this company are not part of your estate.
So making a will is not enough. There is plenty more to consider.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.