No Asset Protection

Case Study Series One

Dying To Get Her Message Across

 

This short six part case study series examines some highly important issues parents must consider if they want their Will to plan for the best and worst their spouse and children will likely be forced to deal with unnecessarily. 

 

Since the sudden accidental death of his wife Sally (see part one), John Standard has found life difficult. Coping with his own emotional trauma while working full time and looking after three young children saddened by the loss of their mother, has pushed John to his limits.

 

Feeling depressed, angry and alone, John turns to self-medicating to get through. It is late one night after a few too many beers that John meets Ginger…online. It is if Ginger really understands John’s pain, listening intently as he cries into his beer while blaming himself for Sally’s death.

 

 

The Circumstances

 

 

 

 

John and Sally Standard had very typical circumstances – the type of simple circumstances that would have certainly benefited from proper estate planning advice and documentation.

 

Personal circumstances

 

  • John 47, public servant on $110k per year.

  • Sally 44, part-time physio on $60k per year.

  • Married 16 years - no previous marriages. 

  • Kids - Toby 12, Alex 10  and Alice 6.

 

Assets circumstances

 

  • Family home held jointly, with $350k owing.

  • Spent $100k on renovations, current value est. $800k.

  • Sally inherited $50k of BHP shares from her aunt.

  • John has a 20% share in a holiday shack, approx. value $60k.

  • John $105k super, Sally $60k super, nominating beneficiaries.

 

 

Issue 2: No Asset Protection

 

 

 

Fast forward five years and John has sadly developed a strong penchant for pain killers and cheap blended scotch, having entered into a disastrous and expensive de facto relationship with the much younger and volatile Ginger. As John and Sally’s home was held “jointly”, on Sally’s death the home passed directly to John outside of Sally’s simple Will. The family home, now held in John’s name only, is essentially up for grabs if legal proceedings commence in the Family Court following his break-up with Ginger.

 

Fast forward 10 years and John has finally moved on from losing half of his house to Ginger, and is no longer self-medicating. John has a new lease on life, and is starting his own business, having recently retired from the public service. However, should John’s run of bad luck continue and he suffers a business failure, or is unable to pay creditors, or relapses into booze and gambling, the remainder of his inherited property could be seized by the Bankruptcy Trustee in order to repay his debts.

 

These unfortunate scenarios might have been avoided. Prior to Sally’s death, the family home could have been converted from being held “jointly” to held as “tenants in common”, and John and Sally’s simple Wills could have been replaced by modern estate planning Wills that give beneficiaries (i.e. John and the kids) the option to receive their inheritance in individual testamentary trusts. Testamentary trusts are special trusts that are created on the death of the Willmaker by his or her estate planning Will for the benefit of the Willmaker’s nominated beneficiaries, who as individual trustees, control their own trust’s assets (i.e. their inheritance). This would have meant that on Sally’s death, John would have inherited Sally’s half of the family home in a testamentary trust created for him by Sally’s estate planning Will. Since property held in a testamentary trust is viewed as privileged by the Family Court, this strategy would have greatly protected at least one half of John’s inherited property from Ginger’s Family Court claim.

 

Furthermore, should John fall into serious financial hardship and be unable to pay his debts, the Bankruptcy Tribunal would be unable to seize John’s inherited assets, as property held in a testamentary trust is also viewed as privileged by the Bankruptcy Tribunal. Unfortunately, as it stands under Sally’s simple Will, all property inherited by John (including half of the family home) is unnecessarily open to attack by the Family Court and the Bankruptcy Trustee.

 

CASE STUDY 1.2

 

No Asset Protection

From 'Dying To Get Her Message Across'

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Email      dwong@retirelaw.com.au

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