Today’s article provides more examples of the potential significant financial benefits which are available to families, by protecting the entitlements of overseas based beneficiaries, or beneficiaries who are disabled or disadvantaged.

Implementing an inexpensive estate plan can reap enormous financial rewards over many years or decades.

Even if all you own is your house/apartment, you should still upgrade from a so-called ‘simple’ Will to a more sophisticated Will that properly protects your assets and your children and other beneficiaries.

Short, simplistic wills do NOT avoid complications – in fact, they do the opposite, by preventing flexibility, exposing assets to attack or trashing, and leaving gaping holes for tax leakage.

Could a beneficiary be a foreign resident?

When a person passes away, any capital gain they made in respect of an applicable asset they owned is disregarded, UNLESS the asset passes to a beneficiary that is an “exempt entity” such as a foreign resident.

A foreign resident for Australian tax purposes is an exempt entity.  This means that, where an applicable asset passes directly to a foreign resident (which usually occurs in a ‘simple’ Will), Capital Gains Tax (CGT) is triggered.  This is known as “CGT event K3”.

That CGT can be overcome by instead passing the applicable asset into a Testamentary Discretionary Trust created in your Will.  This Testamentary Discretionary Trust will have an Australian trustee with the foreign resident as the beneficiary.

But this isn’t to me relevant because everyone lives in Australia!

Keep this option in mind because even if all of your beneficiaries currently live in Australia, they may live overseas in the future.  A very large percentage of Australians hold Passports – and use them often!

Preserving beneficiaries Centrelink entitlements

Many Centrelink entitlements are means-tested.

The eligibility to receive the welfare benefit depends upon:

(a) the value of the intended recipient’s assets (the “assets test”), and

(b) the level of the intended recipients income (the “income test”).

If one of your beneficiaries receives a mean-tested welfare benefit, assets given to the beneficiary directly under a ‘simple’ Will – and income earned from those assets – may affect the beneficiary’s entitlement to the benefit.

Smarter Wills can use the following trust structures aimed at preserving Centrelink entitlements:

Beneficiary Support Trust

A Beneficiary Support Trust is a special type of trust created under a Will for one particular beneficiary where the beneficiary does not have any control over the allocation of the assets.   This Trust is also called a “Protective Trust” or a “Capital Protected Trust

Where assets are in a trust, in determining the assets test and the income test, Centrelink focusses on whether the recipient has control over the assets, so a Beneficiary Support Trust may reduce the risk of the beneficiary losing his/her Centrelink entitlements.

This is especially useful where there is a concern that the beneficiary may be unable to manage his/her own finances – eg, by virtue of having an intellectual disability or a problem with drugs, alcohol or gambling.

Special Disability Trust

A Special Disability Trust is a trust created for one particular beneficiary who has a “severe disability” (as defined by legislation).

If the terms of the trust comply with the requirements of the Department of Social Services, some of the assets in the trust are exempt from means testing by Centrelink and the Department of Veterans’ Affairs.

From 1 July 2017, the exemption extends up to a maximum of $657,250 for the assets test – this amount is increased annually.


Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

Copyright © 2018 Wockner Lawyers. All Rights Reserved. Contact Wockner Lawyers – [email protected]. This article may not be used without the prior written consent from the author. See below for more details…

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