Estate Planning involves two fundamental factors: reviewing your assets and protecting them.
When putting together an estate plan, first consider the assets you wish to transfer. Second, consider how your assets will be distributed or managed upon your death or incapacity (either via your Will or by other means). Finally, if you have insufficient assets to provide for your beneficiaries you may consider implementing some insurance policies. In this issue we will explore reviewing your assets in more detail…
review your assets
Some assets will form part of the estate to be distributed by your Will and some assets are not distributed by a Will.
In some instances, the Will may be limited and may not cover instances where:
- Assets are jointly owned and the will maker is the first joint tenant to die.
- The will maker’s major asset is an income stream which has a reversionary beneficiary. (A reversionary beneficiary is a dependant who automatically continues to receive pension payments from a member’s account in the event of the member’s death).
- The will maker’s major asset is a life insurance policy owned either by superannuation fund or another person.
- The will maker is in a high risk occupation and has assets held in a Self managed Superannuation Fund, discretionary or testamentary trust.
- Estate Plans can be full of legal jargon so when putting together an estate plan, it is important that you understand the different types of assets and the terminology used to refer to them.
what are estate assets?
Estate assets are generally owned in the personal name of the will maker. These can be disposed of by the Will.
Some examples include:
- Real property and shares
- Personal chattels (items)
- Cash investments
- Interest in assets held as tenants in common
- Loans to the trustee of a trust by the will maker
- Income or capital allocated to the will maker from a trust
- Self-owned life insurance
what are non-estate assets?
Non-estate assets may be controlled but not owned or wholly owned by the will maker:
- Jointly owned assets which are held as ‘joint tenants’ e.g. real estate or investments (see ‘jointly owned assets’ below).
- Un-allocated assets which are owned by a family trust.
- Superannuation, subject to member or trustee discretion.
- Allocated pensions and annuities with a reversionary beneficiary.
- Life insurance owned by someone other than the deceased.
- Company (unallocated assets) controlled by a sole Director who is the will maker.
jointly owned assets
Assets that are jointly owned may or may not form part of the deceased estate. This will depend on the type of co-ownership (either joint tenancy or tenancy in common).
When a joint tenant dies, their share in the asset is extinguished and they cannot pass the asset to their estate. The surviving owner becomes the sole owner. The most common type of asset held in joint tenancy is the family home.
tenancy in common
When a tenant-in-common dies, their share passes to their deceased estate. Hence, the executor can deal with that share in the asset.
In the case of real estate, the title deed usually specifies the type of co-ownership. Under common law, joint tenancy of real estate is presumed in the absence of contrary intention.