Review for Accountants & Financial Planners
March, 2016

Beware the specific assets...

Two minute scenarios...

Leaving specific assets to beneficiaries in Wills can cause problems. For that reason, we usually recommend that clients leave a percentage, or portion of their estate, to beneficiaries. Let's look at why.

Scenario One... Ruth & John

Scenario: Ruth and John have three children and have left a property to each of them, along with an equal share of their investment funds. The youngest son, still living with them, is left the family home, and the other two an investment property each. All properties are currently of equal value.

What's the issue? When Ruth and John both die, the family home goes to the youngest and the Broadbeach investment property goes to their daughter. However, the third property was sold to pay for Ruth and John's accommodation at the aged care facility. All their eldest son will get is an equal share of the investment funds. It's not what they wanted.

Solutions: If Ruth and John's Wills were drafted so that the children all received an equal share of the estate, their eldest son would not now have a problem.

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Scenario Two... same again but wait

Scenario: As above, Ruth and John left the three properties to the three individual children, along with an equal share of their investment funds. They still own all three properties at the time of death.

What's the issue? Whilst the properties were all of equal value at the time of preparing their Wills, that is not the case when Ruth and John died. The children will not get an equal share.

Solutions: Again, if the Wills had nominated an equal percentage of the estate to each child, the properties could be sold and the funds distributed equally. Alternatively, the children could agree to each take a property, with an adjustment from the distribution of the investment funds to compensate for any discrepancy in property value.

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Scenario Three... the CGT issue

Scenario: As above, Ruth and John still own all three properties at the time of death, except now they are all worth approximately the same amount.

What's the issue? The two investment properties were purchased post September 1985. Consequently, there is a CGT liability attaching to each of them. The two eldest will get less than a third share of the total value of the estate.

Solutions: Drafting the Will to ensure an equal percentage of the estate would have enabled the executor to either sell the properties or adjust the residual distribution accordingly.

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More information for clients

Please feel free to forward this insight on Wills and Testamentary Trusts to your clients. Or if they would like to discuss how we can help them please call 03 8621 9000 or email info@irongrouplawyers.com with their details and we will contact them, obligation free.

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