The Tale Of Two Brothers

Estate planning is about more than just writing a Will because asset ownership during your lifetime and after your death is dependent upon the type of asset, whose names the asset is in prior to death and the governing documents for each asset.  Consider the following scenario:

Jim and Bruce are brothers. They have both been married twice and have children from these marriages. They have each prepared a Will and want to leave their assets to the wife and children from their current marriage with a small bequest to the children from their first marriage.

Both men have exactly the same amount of assets when they die:

The outcomes from their estate plans are completely different, however:

JIM
•    The home and bank account are in joint names with his wife and they will automatically pass to her. The trustees of his super fund will pay his death benefit to his wife and the children from their marriage. The insurance company will pay the sum insured to his wife.

•    The term deposit is in his name and will be paid into his estate. His Will instructs the executor to make the bequests to the children from his first marriage with any balance payable to his wife and her children. Probate is simple because a small amount is involved.

BRUCE
•    The home, investment property and bank account are in his name and will be paid into his estate along with the sum insured from the life policy.

•    The trustees of his superannuation fund identify all of his dependants and ask them to ‘stake a claim’ if they believe they are entitled to any part of his superannuation death benefit. His wife and all of his children respond and the trustees are left with the difficult task of dividing a relatively small amount between competing claimants. Some of the family are dissatisfied with the trustee’s decision and complain to the Superannuation Complaints Tribunal. It takes nine months for a decision to be made.

•    The executor of Bruce’s Will seeks probate from the courts to confirm that the Will is valid and to give permission for the Will to be administered. With a substantial amount in the estate the children from his previous marriage are dissatisfied with their bequests and make a claim under state laws requiring a deceased to make adequate provision for their families. The court costs eat into the estate value, further bad feelings are created amongst the family and a decision is delayed for another 12 months.

Although both brothers were conscientious in building their wealth throughout their lifetimes, Bruce’s inadequate estate planning failed to provide for his wife and children in the way he would have liked. This also created a stressful period for his family during which they were unable to access any funds or assets from Bruce’s estate.

Are you a happy Jimmy or Bruce?

To assist you in creating an effective estate plan through the use of different structures, such as companies, trusts, superannuation and life policies, make an appointment with your financial adviser soon.

KK’s gut instinct

The market is building in lowering of rates. Over the next quarter consider your next say 3 to 5 years, with the view of locking away all or part of your borrowings.

Wow I’m full of gut feeling this month – ‘great investment property buying in the $450K to $600K range, with excellent returns. Market is soft and worthy of studying areas that you know and like.

Sporting tip of the month

Can the Eagles win. Nah. Still on the Pies, although the Cats are right on song and been there before. Either way it will be an epic match with only 7 points in it.