Case Study Series Two

True Peace of Mind




Tom was at his high school reunion where he got drunk on warm beer and camaraderie. While attempting his best daggy dance, Tom fell down some stairs breaking his neck. Thankfully for his family, the shock and grief caused by his unfortunate and foolhardy death was not his final legacy to them. His final legacy was in fact born three years before his death when he and his wife Mary took the necessary and responsible step of seeking professional financial advice. 


Unlike the previous case study series which looked at the terrible results of a family who relied on no financial or estate planning advice, in this new case study series we will explore the positive benefits that professional financial and modern estate planning advice can provide family members following the death of a loved one. This is a sad story that has a positive ending …Tom’s daggy dancing death notwithstanding.


The Circumstances


  • Tom, 52, is co-owner of a profitable chain of pool shops with his brother Bill. 

  • Mary, 48, part-time online retailer, charity worker and mother.

  • Tom and Mary have three children Jack 23, Jane 20, Susan 18.

  • Jack and Jane are at university, while Susan is working part-time.

  • Tom and Mary have two properties, one in Sydney and one in Mary’s hometown in LA.


Issue 3: Providing opportunities for beneficiaries to minimise income and capital gains tax


Before meeting with their financial adviser, Tom and Mary were not overly worried about the tax consequences either would face should one of them pass away, especially as death duties were abolished in 1981. Having quickly noted that Tom and Mary were relying on a simple Will (identified by the fact that it was only three pages in length), their financial adviser quickly pointed out to them that their current simple Wills (provided by a local solicitor), are unlikely to provide them with tax minimisation advantages that parents in their prosperous financial position should have.


The adviser sat with her clients and watched RetireLaw’s estate planning presentation ‘The Convenient Truth About Wills’, which succinctly highlighted in 8 minutes the major asset protection, dispute avoidance and tax minimisation advantages of RetireLaw’s modern estate planning.


As highlighted in a previous case study, one of the key points of the presentation was that by inheriting via sophisticated testamentary trusts that they control, beneficiaries are able to minimise the income tax on any income earned from the inheritance by distributing the income to their children on a lower tax rate to pay for their expenses, thus keeping more money in the family and out of the ATO coffers. In the example below, over $23,000 tax is saved from $72,000 income earned via the use of beneficiary controlled testamentary trusts.


However, for Tom and Mary, it was also the revelations about Capital Gains Tax that really go their attention. While death duties were abolished in 1981, Capital Gains Tax was introduced in 1985. Today Capital Gains Tax raised on the disposal of assets in deceased estates raises many times the amount that was collected under death duties.


The reason for this is quite simple. The sale of estate assets almost invariably attracts Capital Gains Tax (up to 48.5% of the gain) whereas death duties were capped at 15%. However as with income tax, capital gains can be split amongst potential discretionary beneficiaries. The trustee (e.g. the primary beneficiary) determines who receives taxable gains, benefiting beneficiaries on a low tax rate. In the example below, over $58,000 in tax is saved from the $300,000 capital gain via the use of beneficiary controlled testamentary trusts.


With Mary attracting considerable income and capital gains tax from her inherited business and personal assets, the tax savings made through the use of her testamentary trust equated to enough money to pay for her children’s university fees alone; a much more fitting parting gesture from Tom than his ill-fated 360 degree summersault slam dunk.

This short three part case study series changes angles to look at what is possible for families and business owners with the right professional estate planning advice.





Huge Tax Advantages

From 'Dying To Get Her Message Across'

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