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. 




Tax Problems

From 'Dying To Get Her Message Across'


John Standard’s wife Sally was everything to John and their three kids. Her tragic death has thrown John’s life into a tailspin. If only he had been more proactive with their estate and insurance arrangements, everything would have been so much easier on the kids, and on John. Drinking too much and involved with the much younger and ‘explosive’   Ginger , John could use all the help he can get. However, as we will see in this issue, even if Sally and John had wisely listened to a financial adviser about ensuring their estate was properly funded, Sally’s simple Will is completely inadequate to capitalise on this additional financial support.



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 3: Tax Minimisation




Let’s suppose for the moment that Sally did have significant life cover prior to her death with a payout of $750,000. While this money would be of obvious use to John and the kids following Sally’s death, it is unfortunate that Sally’s simple Will did not provide John with the opportunity to leverage this inherited money to create a tax effective income stream for his family like a detailed estate  planning Will would have. 


Had Sally’s Will provided John with the option to receive his inheritance in a testamentary trust, as trustee (or controller) of his own testamentary trust, John might have chosen to invest the trust assets (his inheritance). As John already has a good income from his public service job, he may not wish to increase his taxable income, instead choosing to allocate the income earned from his invested trust assets to his three children, as is allowed under the Tax Act. This income could be used to pay for the children’s private school fees and other expenses, and the tax rate paid by John’s children (who are treated as tax paying adults) would be negligible compared to John’s high tax rate.


Also, as an asset held in a testamentary trust, Sally’s life insurance proceeds would be protected when John’s new relationship to Ginger ended badly, or when John suffered an unexpected financial disaster, as all assets held in a testamentary trust are given privileged status by the Family Court and Bankruptcy Tribunal.


Unfortunately, since John and Sally did not seek professional financial advice, Sally’s estate remained underfunded with no life insurance payout for John and the kids to rely on, and because of Sally’s simple Will, John did not benefit from testamentary trust protection of his inherited assets or minimise the tax payable on the income earned from his inheritance.


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