The tale of two brothers

This fascinating article uses a case study to explain how asset ownership affects a financial plan. It compares two ways to structure how assets are held with very different outcomes.

The tale of two brothers

Estate planning is about more than just writing a will. 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. To explain the consequences, consider the following:

Jim and Dave are brothers. They have both been married twice and have children from these marriages. They have prepared wills leaving their assets to the current wives and all of their children.

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

However, the outcomes from their estate plans are completely different:

Jim

• The home and bank account are in joint names with his wife which will automatically pass to her. The trustees of his super fund will pay his death benefit to his wife and their children. 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.

Dave

• 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 members 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 Dave’s will seeks probate from the courts to confirm that the will is valid and to give permission for it 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, Dave’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 Dave’s estate.

For assistance in creating an effective estate plan through the use of different structures, such as companies, trusts, superannuation and life policies, talk to us. We’ll guide you in the right direction.