Category

Family

The responsibilities and challenges of an estate executor

Being named the executor of an estate is both an honour and a burden. Entrusted with this pivotal role, one carries out the last wishes of a loved one, but the path is often strewn with complexities and unforeseen challenges.

Navigating the Executor’s Terrain

At first glance, the executor’s role might seem straightforward. However, in practice, it’s a demanding role that requires interaction with a myriad of entities, such as banks, real estate professionals, utility companies, the deceased’s superannuation fund, and the taxation office.

Furthermore, an executor’s duties are vast and varied. They encompass everything from overseeing funeral procedures, securing the death certificate, and notifying friends and family about the loss. They’re also tasked with locating the will, identifying beneficiaries, gathering a multitude of documents, settling estate debts, documenting estate assets, and initiating insurance and superannuation claims.

Yet, the process isn’t without potential pitfalls:

  • Executors face personal financial risks. Any oversight during the estate’s administration might lead to personal financial liabilities.
  • They often encounter hitches in procuring superannuation death benefits and in coordinating with fund trustees.
  • Executors bear responsibility for any losses stemming from estate asset mismanagement. This can include failure in securing and judiciously investing assets or lapses in notifying creditors, settling the deceased’s obligations, and recouping debts owed to the deceased.
  • They can incur financial penalties for unduly delaying estate administration or for hasty distributions.

Guidance for a Smoother Transition

For those in the process of drafting a will and designating an executor, a few proactive steps can immensely assist in the estate’s efficient management:

Collaborate with a knowledgeable probate lawyer or solicitor specialising in wills and estate management. Their insights can be invaluable, especially regarding local family and inheritance laws.

Given life’s unpredictability, regular updates to your will, insurance policies, and superannuation death benefit details are paramount.

It’s crucial to note that superannuation doesn’t fall within your estate and isn’t addressed in your will. Still, you can specify your wishes and arrangements concerning your super death benefit nominations in your will.

Seek guidance from your financial adviser and super fund to establish death nominations, thereby streamlining benefit acquisitions for beneficiaries.

If feasible, contemplate liquidating your entire death benefit from the super fund while still alive. This proactive step allows for immediate distribution based on your directives or deposits into a bank account, providing easy access for the executor upon your passing.

If you’re ever nominated as an executor by a loved one, it’s prudent to discuss these considerations with the person who drafted the will (the Testator). Collaboration with their legal advisor (and financial consultant if available is also advisable to ensure a comprehensive understanding of the responsibilities and challenges ahead.

The role of an executor is multifaceted, rife with both honour and intricate challenges. However, with a well-charted roadmap and diligent preparation, the process can be streamlined, ensuring a smoother transition for all involved.

This can be a complex discussion and should be undertaken with a trusted advice professional. Reach out to the Sherlock Wealth team here to get started.


Source: Matrix Planning Solutions

This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.

 

Farm Succession Planning: Balancing Financial and Emotional Aspects for Generational Transition

The Challenge Facing Farm Owners

The complexity of farm succession planning extends beyond mere financial transactions. For farm owners, navigating the transition of a generational asset such as a farm is both an economic and emotional endeavour. The process often grapples with uneven asset distribution, potentially leading to family strife if not managed well.

Addressing Inequality in Asset Distribution

A typical farm usually constitutes the lion’s share of a farming family’s assets. However, the farm’s income is often adequate to sustain just one family. Consequently, when the time comes to hand down the farm, usually, one child becomes the inheritor.

This poses multiple problems:

  1. Inequality in Inheritance: A single child ends up inheriting a substantial portion, if not all, of the estate, leaving other siblings potentially aggrieved. While the natural inclination for parents is to distribute assets equitably among all children, dividing a working farm is often impractical.
  2. Legal Disputes & Contested Estates: Siblings who feel left out may resort to legal avenues, leading to estate contests that might result in the division of the farm—precisely what parents aim to avoid. Such situations are emotionally and financially taxing, culminating in strained familial relations.

Strategies for Advance Planning

  1. Cultivating Off-Farm Assets: One way to address this imbalance is by accumulating assets unrelated to the farm, which can be bequeathed to the non-farming children. Investments and superannuation funds are good vehicles for this purpose, offering tax benefits and ensuring a financially secure retirement for the parents.
  2. Early and Collaborative Planning: A well-thought-out succession plan requires the input of multiple experts: an accountant, financial planner, solicitor, and possibly a bank or commercial finance broker. Early planning allows for structural implementations that ensure all family members are in agreement, facilitating a seamless transition.

Preparing for Unforeseen Circumstances

Life is unpredictable, and the untimely demise of a parent can throw succession plans into disarray. Here, life insurance can serve as a financial cushion, providing immediate liquidity to manage an unplanned succession.

Retirement Concerns for Parents

What sustains the parents after they step back? Ideally, they would live on the off-farm assets accumulated over the years. However, the reality is often a mix of income streams, such as leasing arrangements and continued payments from the farm. This is not always convenient for the next generation, who may prefer to invest in the farm rather than pay their retired parents. Moreover, assuming ownership may require the new generation to shoulder existing debts and potentially accrue new ones to buy out their parents.

Conclusion

Farm succession planning is more than just a financial transaction; it is an emotional and familial journey that requires collective decision-making. Initiating the process early and involving all family members can alleviate potential pitfalls. A balanced approach can help navigate the complexities and ensure the farm remains a generational asset while still considering the needs and feelings of every family member.

Reach out to our experienced advice professionals to discuss your unique situation here.


Source: Matrix Planning Solutions

This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.

Who needs a testamentary trust?

While the escalating cost of living commands immediate attention as individuals grapple with mounting expenses, our shared wealth is steadily expanding, progressively transferring to the next generation at an accelerated pace.

In fact, the value of inheritances as well as gifts to family and friends, has doubled over the past two decades.i

A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.

So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.

One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.

It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.

A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.

Choosing a trustee

If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.

The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.

Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.

As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.

The pros and cons

Whether or not you should set up a testamentary trust in your will depends on your own circumstances.

The positives include:

  • The ability to control the distribution of income
  • The possibility of some tax advantages for your beneficiaries
  • A level of protection for your assets from lawsuits, family breakdowns and business difficulties
  • A way of keep a family’s wealth intact into the future
  • Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
  • Can be used by anyone with assets to distribute, whatever the size of their estate

On the other hand, there are a number of considerations to be aware of such as:

  • The complex paperwork and reporting required
  • The cost to establish the trust and keep it running
  • The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration

Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.

Reach out to our team here to discuss more about establishing a testamentary trust and to see whether it is suitable for you.

View Andrew’s website profile here or connect with him on LinkedIn.

Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.

A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.

A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.

Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.

Andrew can also be contacted at ask@sherlockwealth.com.

 

 

https://apo.org.au/node/315436

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