Making or Updating a Will – Expatriate Issues
Commencing an overseas assignment is one of those occasions, just like marriage and the birth of children, when you should review your current will, or the making of a will if you do not currently have one. The penalty for not doing so is the prospect of having your estate (very slowly) distributed under often strict and inflexible statutory guidelines that may be contrary to your own preferences and incur taxes at a higher than necessary level.
Some issues to consider when making or updating a will:
- Generally, if you have substantial assets within Australia, you should not leave the assets to one of more beneficiaries absolutely without considering the taxation consequences to your beneficiaries. Your circumstances may require the Will to be as flexible as possible, with perhaps most assets left to the trustee of a testamentary trust - this is a discretionary trust which is established by a Will. Under the will the trustee will have the power to distribute income and assets in the most tax effective fashion, having regard to the personal circumstances of the beneficiaries. In this context, the Will can contain guidelines for the trustee to follow on the allocation of income and assets and you may leave a letter expressing your wishes with your trustee. This letter will not be binding on the Trustee. Your legal and financial advisor can assist you in obtaining the best structure for your personal circumstances.
- In terms of the trustee, this can be a professional organisation or solicitor, but may also be your spouse or any other trusted individual, or individuals. Note that the role of trustee can be onerous on occasions, particular if the estate's circumstances are complicated, and the trustee should be chosen with this in mind. Also, trustees are entitled to compensation for their activities and you should familiarise yourself with the fees of any professional organisation this is particularly the case if the fees are a percentage of estate assets and these are reasonably substantial. Note that we do not generally support the use of Trustee companies in the preparation of will and provision of executor service - they generally lack the experience to address expatriate issues and can be unduly expensive if the estate is complicated.
- Within a Will you have the right to nominate the guardians of any of your children who are minors, if both your spouse and you should die. Whilst there are some circumstances in which this nomination might be overturned by a court this is relatively uncommon.
- It might seem logical that having one will covering all your assets - wherever they might be – is the tidy, preferred option. In fact, if you have reasonably substantial foreign assets, having one will in Australia or elsewhere attempting to cover all your assets is generally not the preferred approach. Instead, you should consider making a separate will in each country in which you have assets/income, and obtain appropriate legal advice in each country. The structure of your will in each country will be a reflection of the estate and tax laws applying in that country. Any attempt to put in place one over-arching will applying to all assets, wherever they might be, will almost inevitably lead to higher tax or estate duties across the entire estate.
- You should also be wary of making provision or direction for assets to be transferred to Australia or to an Australian resident, or applied in favour of a resident beneficiary without the benefit of professional advice, in case it has an adverse tax impact. Expatriates with assets in a number of countries are advised to seek appropriate legal, and other professional advice such as tax, regarding the proposed disposition of any estate.
The need for professional advice is accentuated by the fact that a surprisingly high percentage of Australian wills are contested, mainly under "family provision legislation" - state laws which enable a spouse, child or dependant to contest a will on the basis that adequate provision has not been made for them. Again, research suggests that a high percentage of these are successful, with courts apparently very willing to vary allocations made in a will. Particularly if your estate is large or there are complicated circumstances, the latter of which is typically the case for expats, then specialist advice from a lawyer who specialises in estates and successions will be necessary.
Superannuation - Nominating Beneficiaries
It is important to remember that superannuation is not a matter automatically dealt with in your will. In the absence of your telling the trustees of your superannuation fund who should receive your superannuation benefits it is the trustees of the fund who will determine who should receive the benefits.
In summary, it is the right and obligation of the trustees to distribute your benefits among your dependents and your estate in whatever fashion they believe is fair and reasonable unless you have put in place a "binding nomination". Such a nomination removes any uncertainty in terms of who receives the funds on your death and provide you with clarity in terms of estate planning.
Who can you nominate?
• Your spouse – they can be your legal spouse or de facto, who lives with you on a genuine domestic basis.
• Your children of any age – they can be step-children, adopted or "ex-nuptial".
• The executor of your will or administrator of your estate – also called your legal personal representative.
• Anyone with whom you share an “interdependency relationship”.
In terms of what constitutes an interdependency relationship, it is defined as a relationship between two people who have:
- a close personal relationship; and
- live together; and
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care.
An interdependency relationship can also exist where a close personal relationship exists between the two persons but because of a physical, intellectual or psychiatric disability, one or more of the other conditions are not met.
You can split the benefit between two or more people as long as you give details of those dependants and the proportional share they should each receive.
Note that only the nominees who are dependent at the time of your death can receive your super, If you don't have any qualifying dependents then you should nominate your legal personal representative or the executor of your will. If the trustees of the superannuation fund confirm that there are no other dependents, then the funds will be almost certainly distributed to your estate..
Note that binding nominations are typically only valid for a period of three years, and your super fund should advise you when your current nomination is about to expire. You can revoke or alter your nomination at any time by sending your super fund a new binding nomination – which needs to be witnessed by two independent individuals. It's important to note that if your nomination expires and you fail to renew it, your benefits will then be paid to your estate. Once you've made a binding nomination your superannuation is not, in the future, payable at the entire discretion of the trustee.
Bear in mind that you can also have a non-binding nomination, the effect of which is to merely inform the super fund trustees of your preferred beneficiaries. In this situation, the trustees retain the discretion to make the final decision with respect to any distribution.
Finally, we suggest that prior legal and/or tax advice is sought in terms of making any binding nomination, particularly in complicated circumstances. Remember that leaving superannuation money to someone who is considered a non-dependent under tax law can attract tax of up to 32%.