Your Will is a legal document that sets out directions for the administration and disposal of your assets after death. It must comply with fairly strict formalities to be valid. However, even a valid Will can sometimes be totally ineffective if it does not achieve what you intend because of assets you do not actually own.

Your sole assets

This is because a Will can only control the sole assets that you owned in your sole name as at the date of death. Therefore, any assets held in a company, a trust (such as a family trust) or a superannuation fund will not form assets of your estate. Put another way, your Will can only give away what you own.

This can be confusing to some who think that they own everything, even those assets that have been placed in a company, trust or superannuation fund, and that their Will can automatically control the distribution of these non-estate assets. On the other hand, having assets held by other entities can also be of benefit to those seeking to protect those assets against claims after their deaths.

Non-estate assets

For example, you do not individually own assets held as follows:

• Jointly-owned assets are not part of your estate. These assets pass by the laws of survivorship directly to the survivor, and do not pass through your Will.
• Company or trust assets are not part of your estate. Company assets are governed by the company constitution, although you may own the shares, and not your Will. The distribution of trust assets are governed by the trust deed and not by your Will.
• If assets are held in a trust such as a family trust, it will be important to confirm the effect your death will have on the trust, and the tax implications of any family trust election you may make. It will also be important to ensure that you have complied with the land tax notification requirements for land held by the trust.
• Investments in Superannuation Funds do not normally form part of your estate. This is because the superannuation assets are held by the fund's trustees on your behalf. If you have a SMSF, it is prudent to ensure that your trust deed is up to date to take into account the significant number of legislative changes that have occurred over the past few years. In particular, you may wish to have a clause allowing you to make a Binding Death Benefit Nomination if the circumstances are appropriate.

Only if assets are transferred from these other entities to your sole name prior to your death can your Will control their distribution. However, it is important to note potential stamp duty and CGT liabilities for any asset transfers.

Please note this article is for informational purposes only and does not constitute legal advice

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A Will is an extremely important document - and dying without a current and complete Will can have serious ramifications.

The purpose of making a Will is to give you the power to determine who you leave your assets and personal belongings to, Dying without a Will ('intestate') means your assets and personal belongings are distributed in accordance with the rules of intestacy. This could mean that the people you most want to benefit from your assets might not get anything at all. Also, dying without a Will may result in your Estate taking longer and costing more to administer.

Powers of Attorney are complex documents. This comprehensive document takes you through the various types.

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A Will is a child of the legislation of the jurisdiction in which it is made. It can do no more, and no less, than the legislation allows. Your Will cannot give away what you do not own therefore, while your

sole assets are covered by your Will, joint assets, assets owned by a company, a family trust or your superannuation fund are not covered by your Will.

A couple of recent Court case studies demonstrate how important it is to ensure that you get correct advice when making your Will, particularly if you also have assets owned by other entities. They further demonstrate how important it is that your professional advisers know what you are up to, and that they each know what role the other is to play in acting on your behalf.

Katz v Grossman [2005] NSWSC 934

A Will cannot direct an SMSF trustee as to how that member's death benefits will be distributed. The surviving husband of an SMSF fund died leaving two surviving children: a daughter and a son. The father and the daughter had been co-trustees of the SMSF after the wife had died. The daughter was therefore the only surviving trustee of the family SMSF. The son was neither a trustee nor a member of the fund.

The fund comprised the father's superannuation benefits of $1,000,000.00, and his Will directed that SMSF benefits were to be split equally between his two children. However, the daughter exercised her discretion as the surviving trustee to disregard her father's Will, and paid all SMSF fund benefits to herself.

The Superannuation Complaints Tribunal could not assist the son, as that body has no jurisdiction over SMSFs. The son was unable to get the father's Will to make up the shortfall as the Will did not contain any equalisation clauses to even up the unequal payment of death benefits. Further, the father had not made a Binding Death Benefit Nomination. In fact, the SMSF deed did not appear even to allow for a BDBN to be made.

Had the fund deed permitted a BDBN, an additional measure may have been required. An Enduring Financial Power of Attorney with an express authorisation for the attorney to confirm or alter the BDBN could have been executed. Further, it may have been necessary to amend the SMSF deed to allow an indefinite BDBN that would not lapse after 3 years.

In summary, the NSW Supreme Court held that:

• The daughter had validly exercised her discretion as a trustee to distribute the whole of the death benefits to her alone, even though the son had been unfairly excluded, and
• The Will could not direct the distribution of death benefits from the SMSF.

Another example - Public Trustee v Smith [2008] NSWSC 397

A Will cannot direct the way in which trust assets will be distributed on the death of the Testator.

Dr Helen Ward was a cat lover, divorced, had no children, and was the sole director and shareholder of Helen Ward Nominees Pty Ltd, the corporate trustee of her family discretionary trust. The trust had purchased the residence in which Dr Ward lived. However, there an oversight in the drafting of the trust deed meant that Dr Ward was not a beneficiary of her own trust. As a result, the trustee could not use the default beneficiary provisions in the trust deed to distribute trust assets to her even if the trustee had failed to distribute all of the income and capital to the beneficiaries.

Dr Ward made her Will appointing The Public Trustee as her Executor and Trustee, and left her "property" to Ms Robyn Smith, giving Ms Smith a right to reside in the property for at least 15 years subject to Ms Smith agreeing to look after Dr Ward's cats. After 15 years, Ms Smith would receive the property in her own right.

After Dr Ward's death, it became clear that the property was an asset of the family trust, and therefore was not part of her estate. Ms Smith challenged Dr Ward's Will, and commenced proceedings against the Public Trustee of NSW. The parties agreed that ideally the trust deed should be amended to include Dr Ward as one of the trust beneficiaries even though she was now dead. Ms Smith sought to enforce the gift of the property given by Dr Ward's Will, arguing that she was entitled by "beneficial ownership by virtue of control" as determined by the Federal Court decision in the Richstar case.

In Richstar, the defendant had controlled the Appointor of the family trust, and therefore had controlled the trust because the Appointor could remove and replace the trustee of the trust.

Using the above as a basis for her claim, Ms Smith argued that because Dr Ward had held the power to control the exercise of the trustee's discretion in distributing the trust property, Dr Ward was therefore the beneficial owner of that trust property. Using that logic, Ms Smith concluded that the house (owned by the trust) should be given to Ms Smith as directed by Dr Ward's Will.

The Court rejected this reasoning.

Richstar's finding of "beneficial ownership" had relied upon ASIC's prosecution for breaches of The Corporations Act 2001 that had no bearing upon Ms Smith's claim. Sadly for Ms Smith, the Court held that, just because Dr Ward could control the exercise of the trustee's powers, and could cause the trustee to distribute trust income and capital did not make her the beneficial owner of the trust property.

The Court observed the following:

• The trust deed failed to give the Public Trustee the power to distribute the trust assets as directed by Dr Ward's Will. The fatal flaw was that the trustee could only distribute capital to the named capital beneficiaries who were living at the time of the distribution. As Mrs Ward was now dead, and had not even been a beneficiary of her own family trust at the time of her death, the trustee could not have distributed trust assets to her during her lifetime and certainly could not distribute trust assets to her estate now that she was dead.
• The Public Trustee, with the Appointor's consent, could still wind up the family trust and seek to distribute the trust assets. Yet, the even then the distributions could only be given to the default beneficiaries under the trust deed. As neither Mrs Ward nor Ms Smith was a default beneficiary of the family trust, the Public Trustee as trustee of the trust would breach its duties if it tried to distribute trust assets as directed by the Will.
  
  

Notably, the Court did not decide on these issues. Instead, it referred these problems back to the Public Trustee to resolve. However, a number of questions still remain:

• How was it that the discretionary trust deed had failed to name Mrs Ward as a beneficiary of her own trust?
• What are the tax implications of distributions of capital and income in breach of the terms of the trust deed to Mrs Ward during her lifetime?
• How was Mrs Ward's Will prepared and executed despite her having gifted property that she did not own?
• How would the Public Trustee (as trustee of the family trust) deal with the CGT and stamp duty liabilities if the Court had installed Mrs Ward after her death as a trust beneficiary in light of the ATO's 2001 Statement of Principles regarding resettlement?
• How could the Public Trustee even try to distribute family trust property according to the Will when it would be in direct conflict with its obligations as both the LPR of the estate and as the trustee of the family trust, thereby exposing it to claims from dissatisfied default beneficiaries of the family trust as well as beneficiaries under the Will?

For more information on Wills and Estate Planning, please call the team at Topdocs on 1300 659 242.

Please note this article is for information purposes only and does not constitute legal advice.

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