How to create your strategic plan

Of course things quickly get complicated when you have established a multitude of companies and trusts to minimise tax and manage risk. Here are a few key points when thinking through the entire estate planning exercise:

1. Is there enough in the share of the estate to make it worthwhile to establish a trust? If the share of the estate is small perhaps for ease of administration a trust does not need to be set up. Consider if there are any tangible financial benefits or tax reduction options that suit.

2. Does the estate trust need to be commenced or can the person just dispense with it? In some cases it is more appropriate to just distribute the share of the estate but you need to confirm the power to do this if that is intended.

3. What is the real intention behind the trust? Is it to protect the asset from divorces, insolvency or a spendthrift family member? Often the prime motivation to establish a trust is to ensure people are protected from their own circumstances, such as a tenuous relationship, risk in business from creditors or their own vulnerability.

4. What kind of trust is appropriate for each beneficiary? Should there be an independent trustee holding control of the trust and assets? Should siblings jointly control each of their trusts? What are the practical implications of investing the assets over a long period and to suit each family group? These are important questions and not one size fits all.

5. What is a beneficiary is disabled or unable to manage their financial affairs? A special disability trust can be established in the Will and it will preserve the Centrelink pension entitlements if the person is assessed at a level of disability that complies. A main residence can be gifted into these trusts for the long term accommodation of the person even if they share with others with the support of  a carer. Careful drafting is required to ensure the model rules for the trust are created.

6 . What powers do the trustee have over the trust and who can they appoint to replace them as trustee? Often the cascading effect of  the estate trust is intended so that the capital is preserved and invested at least until the third generation has been appointed at a set age to act as trustee. There can be a requirement the trust must continue until certain specified beneficiaries reach that prescribed age as the will maker decides.

7. What powers should the trustee have? Can they invest in shares, real estate, a main residence, managed funds, exchange traded funds and can they borrow money against the capital of the trust? It is important to define the rights of the trustee so when managing investment accounts they have either the freedom or the restriction to deal with these assets.

8. What effect do the New tax Rules have? Section 102AG(2AA) was introduced to the ITAA starting July 2020. This imposed a new test income is not excepted income if it is generated from assets:

1. acquired by or transferred to the trustee of the trust on or after 1 July 2019, and
2. are unrelated to property of the deceased estate.

For example, if the deceased leaves $100,000 in a testamentary trust, this is excepted income as it formed part of the deceased estate. If this amount is invested, any return on the investment is also excepted income. However, if the trustee borrows $100,000 from a lender and injects it into the trust, this amount and any return is not excepted income. The borrowed funds have no connection to the deceased assets, so it does not satisfy the test under section 102AG(2AA).

The most important step is to take the time to get strategic advice for your individual estate plan. It is so easy to spend an hour by web conference talking to an experienced estate lawyer, who can have a detailed conversation with you and your accountant and financial advisor. Create the plan you need.