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Estate planning for children and beyond

If we can, we all want to help our kids and if possible their kids. This help can take many forms, such as assisting them in buying a home, helping with school fees etc. However, problems arise when we have to deal with family wealth distribution in the event of adult children’s marriage breakups, health issues, or where there is a “black sheep” adult who doesn’t get along with their siblings. There is rarely a solution that will satisfy all parties, but you can mitigate the family conflict and better control the financial pain by planning ahead.

There are some critical concepts that need to be understood, such as:

  • What does and does not pass through the estate
  • The ability of others to challenge the estate
  • Making sure the “right assets” go to the “right” beneficiary
  • Cash or assets – working out who gets what and how you equalise it to minimise resentment
  • The best use of structures, which can include Testamentary trusts, Special disability trusts, Death benefit pensions and child pensions

The length and reading time restrict me from commenting in too much detail on these areas, although you are welcome to contact me for more information. The first point is understanding the relationship between death and taxation. Death in itself is not a taxing point. Instead, it is an “event” for Capital Gains Tax (CGT) purposes. This means that the beneficiary acquires the asset at the deceased cost base at death. It is not until the beneficiary then disposes of the asset that tax may become payable. Also, the ownership can pass through a structure; for instance, a deceased person may pass their asset to the ownership of a testamentary trust (a trust only created on death), and then, at some time in the future, the income or capital deriving from that asset may pass from the trust to the beneficiary (an actual person). It is not until the beneficiary receives the income, receives a capital gain or disposes of the asset completely that it becomes a taxable event. Hence, the benefit of these structures is that assets may be held for many years thereby delaying a taxable event until a better time and place in the future.

The other issue that has to be contended with is adult children with rocky marriages. Family Law in Australia has wide-ranging powers and once the assets are in the hands of adult children, they can be roped into the pool of assets subject to a marital property settlement. Many people believe superannuation has protections from the reach of Family Law – it does not; this is a misnomer. Further, it is a common misconception that assets owned by a discretionary trust will not form part of the property pool available for division between separated spouses. Only in rare situations where a trust has been set up by a spouse’s parents, and where the parents have built up the assets of the trust and the parents are the appointers and trustees and the spouse is simply a class of beneficiary and has no control; then depending on the history of distributions to the spouse, the trust could be treated as a financial resource rather than as an asset in a property pool to be divided.

Assets left to children via a testamentary trust have attracted far more lenient treatment from Family Law courts because these assets are viewed as inherited assets and are seen as being held for the entire family rather than belonging to one individual. One strategy we often use where a beneficiary wishes to use assets owned by a testamentary trust is to have the testamentary trust make a loan to the individual. In the event of a marriage dispute, the loan would normally need to be repaid by the individual to the testamentary trust.

Does the question arise as to how you deal with the “black sheep” of the family? Whether mental capacity, a lavish lifestyle or substance abuse, these people often need special structures to protect themselves and the family wealth base. A solution to this is the choice of trust structure where a trustee has control to distribute income and capital as they see fit. We often view having a family member as the trustee as a challenging position and often lean toward considering the use of professional trustees.

As you can see, there is a range of concepts to consider. I would like to speak about the special relationship between grandchildren and their grandparents, but I believe this is a topic best reserved for next time. We hope you have enjoyed this brief foray into the world of estate planning. The estate planning, financial planning, and wealth management areas are all inextricably intertwined. If you have any questions about this article or would like to know more, please contact us at

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