Tara (00:56):
Hi everybody and welcome to episode 12 of The Art of Estate Planning podcast. As usual, I am joined by the delightful Carrie. Hey, Carrie.
Carrie (01:08):
I don't think anybody's ever called me delightful, Tara, but I'm happy to claim it.
Tara (01:15):
I'm going to come up with a new adjective for every episode in that case.
Carrie (01:19):
Great, great. It'll be a change from the normal wet rag comments.
Tara (01:25):
And here I am just going, oh, did I even use the right grammatical term? I don't know. We might cut that out.
(01:34):
Okay, so this episode is again on testamentary trust because there's so much to say about them and they are one of my favourite topics. But before we dive into this week's exact topic, we had some listener feedback, which I just absolutely love from one of our financial advisors who was listening. So his feedback relates to episode eight about how much money do you really need to justify a testamentary trust? And in that episode we talked about, look, if you are just going to get enough of an inheritance so that you pay off the mortgage, upgrade your car and take the family to Disneyland, maybe a testamentary trust is over the top. And he actually had some really fantastic feedback, and obviously he's seen it and it implemented it with clients, and it's not just theoretical, which I absolutely love sort of bolstering this support for considering a testamentary trust, perhaps even in that situation because he wanted to emphasise how valuable it can be that even if you are using the bulk of the capital from the testamentary trust to pay off the mortgage on your home, there's two ways you can do that, right?
(02:53):
You can just go, all right, here's the capital. I'm releasing it from the trust as a distribution, or we're bypassing the trust and just paying it directly to me, and then we're paying it to the bank. We're discharging the mortgage. We've got clear title, end of story. The alternate position is that you do have that capital going into the testamentary trust, and then what you actually do is loan it out to yourself as a loan on favourable terms, maybe it's interest free or really low interest rate, very manageable repayments. And so you have a loan instead of the loan to the bank. The loan is actually to the testamentary trust. So you use the money the testamentary trust has loaned, you do pay off the mortgage with the bank, get the bank out of your life, and then you actually substitute the bank with a mortgage to your testamentary trust.
(03:50):
But it's kind of like you owe that money from your left hand to your right hand. Now, why would you do that? Firstly, it's great for asset protection. So if you enter into a new relationship, go through a relationship breakdown, you still have that equity owing into the testamentary trust. It's not subsumed into the capital or the equity in the family home. So you do have a bit of, you're bolstering your asset protection from family law and asset protection from bankruptcy as well. And in terms of the compliance, because I think that's what people can get really hung up on and worried about. David's comments were, look, the compliance isn't really that bad. The trust is not earning any income if the loan is interest free, so you don't really need to prepare financials for it each year. Or if you do, it's a very simple financial return and tax return.
(04:48):
Nothing's really changing. You could also lodge a nil tax return if you aren't charging interest. And what can be helpful is over time, either you do repay back that mortgage or if you sell the house, then you repay the mortgage and you are building up the capital reserves ultimately in the testamentary trust. So if you had kids or grandkids who could access that tax-free income, you can then once you've paid out the mortgage to yourself or sold the property and paid the mortgage back to the trust, you can use that capital, invest it, do generate an income, and then distribute tax free amounts to children or adult children who need it. So look, it's not going to be for everybody, but rather than just sort of writing it off all together, I think that's a really great insight from David. He's told me about a client where he actually set this up and it works really well in that situation. The surviving spouse was a high income earner themselves, and it just really helped set them up for the future. So I love hearing stories about people using testamentary trust in the real world rather than just the theoretical planning for the future and it being a real advantage to the family.
Carrie (06:10):
I think, Tara, I just want to add in a couple of comments here. I know we're talking about that kind of loan strategy from the trust. I always say to the client, the trust kind of acts as the bank, and that's the easy way for them to understand that It's a similar sort of process where it's a loan from technically what's a third party, but academically it might be different when we talk about that loan, and it's certainly not necessarily the topic of discussion for today. Maybe it's a podcast we do later on, Tara, but there is some nuance around that loan agreement and how much protection you want because we do have case law here in Queensland around loans to people from entities and what those loans have to look like in order to get those family relationship breakdown protections. I won't bore everybody to death with it today. Certainly we might talk about it another date, but I don't think it should stop people from doing these sorts of things because that's when it gets to court. And even then there's still some points that aren't settled as a part of that particular case. So the options are to do the arrangement that suits you in the context of your circumstances, but there is some sort of asterisks around that loan arrangement and how you have to do it if the ultimate goal is family law protection.
Tara (07:21):
Yeah, that's a great point Carrie, and I think I'm writing this down as we speak in terms of making that a future podcast episode. I think the thing is people are making this decision at the very get go of what type of will are we going to have a simple basic will or a testamentary trust will? And yeah, it just sort of bolster the position that maybe don't write off the testamentary trust will, especially if you are using a precedent that has optional testamentary trust or the ability to bypass the testamentary trust as David suggested. It really can just create a lot more options and flexibility for the financial advisors to get in there once someone has passed away, look at what assets are in the estate where they could potentially go and really just craft a powerful and unique strategy. And the more flexibility that we give families in the will drafting, the easier that's going to be. Okay. Should we get into this episode's topic?
Carrie (08:25):
I think it's actually a nice kind of segue, Tara, because when you think about those things around structuring your estate plan in that way and using those tts, we have to think about who actually controls that testamentary trust and whether the logical position is always to be the surviving spouse, which is the topic of today. So I think for most of our vanilla families, it's kind of what we think is the default, but I think we do need to still be thinking about it each time for different reasons, but I figure you've got some comments you want to make, then I'll fire my useless feedback into them.
Tara (08:57):
Oh, do I have opinions on this topic or what? Yeah. Okay. And it comes up a lot, which rightfully so when we are talking to lawyers who are starting to get their head around testamentary trust and thinking about how they play out, it is a really common question and it's something we wanted to address. So I want to just set the scene initially about a few things. So what we're talking about is one spouse has died and the other spouse has survived, and we're utilising one or more testamentary trusts in the estate plan. And the question is, how much power discretion control do we give to that surviving spouse over the assets in the testamentary trust? To just simplify this conversation initially, I think we'll try and start simple and just build up in more complex scenarios as they play out. But just the most very simple permutation is when you have got adult, sorry, of course, adult children when you've got test status with adult children, probably in that baby boomer era, usually as a rule of thumb, I wouldn't set up a testamentary trust for the surviving spouse.
(10:16):
Now obviously it depends, but for a lot of them where they've got the bulk of their assets held in property that's owned as joint tenants and super where they may or may not have reversionary pensions or a self-managed super fund, a lot of that wealth is going to just revert to the surviving spouse automatically by default. And there may not actually be a lot of wealth passing through the estate or those favoured boomer clients in the first case. And so would we bother with a testamentary trust or not? Sometimes yes, if there is going to be enough wealth going through the estate, sometimes no if they're not too worried about repartnering risk. Now we've got notes on that, but often just to keep it simple and the testamentary trusts really come into their own when we are looking at, okay, the adult children taking their inheritance, contrast that where I think we're going to spend most of our time today on the scenario where there's a young couple with young kids, and that is where I really see it being super powerful for a surviving spouse to have a testamentary trust. So I'll talk through a little case study or practical scenario, and I think I'm going to use myself. I usually use the frozen characters, Elsa and Ana.
Carrie (11:45):
Well, there's certainly no point using me, Tara, so it's got to be one of the two of us, right?
Tara (11:48):
Well, yeah, what is it? Your basic bitch family scenario, most common demographic. And I think it's helpful, not that what I've done is necessarily perfect, but I have thought long and hard about it, and it is helpful I think for people just to listen about the choices because it's always compromising and trying to give and take to get the most perfect strategy for a family. One thing actually I did want to say as well before I forget, is I'm really of the school of thought when it comes to estate planning and particularly testamentary trusts to customise the strategy for their clients. So I'm sure we've said this a million times before, but some templates or precedents for testamentary trust do just have a cookie cutter, one size fits all where every beneficiary gets a testamentary trust and the primary beneficiary or the nominated beneficiary is the default trustee and appointor. That's kind of it. And there's not a lot of customization, whereas I really prefer to look at how many trusts are we going to have, who is the controller going to be? What are our objectives for income flexibility, asset protection from family law, asset protection from bankruptcy, the personalities involved, and really pick and choose from our toolbox to customise a tailored solution. So that's probably where a lot of this analysis is coming from, really trying to get the families in a structure that works.
Carrie (13:30):
I totally agree, Tara. I think it's easy just to think that everybody should run a right way with their own money, but they should be totally separate discussions because they're incredibly different roles with incredibly different considerations. So just to kind of say each benefic, each nominated beneficiary is a trustee of their trust. I sometimes wonder did they really think that through from both the client perspective but also some of the technical stuff, like I've seen a will before where the sole trustee was the nominated beneficiary and that person lived overseas, they weren't a tax resident, and we know that creates some taxation issues. So I think that that's a really important thing is to split those conversations out into beneficiary trustee. They're totally different roles, so they have totally different considerations.
Tara (14:15):
Yes, I love that example, Carrie. So simple to avoid with such drastic consequences. So let's just talk through testamentary trust for young couples with minor children and why testamentary trust is even beneficial. What are some of the key advantages there? So I'll use myself and I will put myself under the proverbial bus and I've passed away. I have $1.2 million in life insurance that I know is going to go to my husband and our two. And so I of course can use a basic will or the testamentary trust will, and you can bet that I've set up a testamentary trust will right for him. So I've got one trust for my husband and our two boys, and what I've done is I've just put my husband in as a sole trustee if he survives. The reasons I've done that is I think it offers a lot of protection and sets him up in a structure that just puts him on the front foot in terms of entering new relationships.
(15:27):
So no one wants to think about who your husband's new wife will be or new spouse will be if you die, but I do want him to go on and live his best life. I haven't written a list of suitable partners, but I trust his judgement , but I don't want him, we're quite youngish, so I don't want him to just sit there mourning forever, although he has told me that one wife was way too high maintenance, so he doesn't think he sees himself being a bachelor forever. Anyway, a slight dig to you, Tara. He's saying, of course, I mean Carrie, you work with me. Can you imagine being married to me?
Carrie (16:12):
I'd be adding a co-trustee for that little comment.
Tara (16:16):
Well, this is the thing. We've done mirror image wills. So if he died, I don't want a co-trustee. I don't want to suddenly be accountable to someone for how we run our family finances. So we have just kept it super simple and each of us is the sole trustee. But even with that structure, this is why I like it and chose it. So say my husband Jared does enter in a new relationship and suitable morning period, hopefully not six months later or something. He can listen to this if I die and know my wishes. But look, he will have to make a new will. He might bother, he may not bother. Hopefully he knows the importance of making a new will, but he may not get around to it for a while. Plenty of people don't. If I use a basic will, right, the million dollars of insurance that I've left to him just goes into that property pool with his new spouse, and if he dies, then his estate has got to be distributed between our two children together.
(17:25):
His new spouse, maybe they have more children together. We all know men's fertility years go much longer than a woman's say. There might be my two boys, a new baby, a new spouse, and they all have claims on his estate. So if he doesn't even do a will, I'll give him the benefit of the doubt and he does make a new will, but that is a really difficult exercise for him now because he's got to sit there and look at all these competing claims. Actually, how many sidebars can I go on in this episode we were watching season three of Fisk. Have you been watching that, Carrie?
Carrie (18:05):
No, I haven't seen season three.
Tara (18:07):
Yeah, so we just started watching it and we watched it together and her mom had passed away, like Helen, the main character, her mom had passed away. Her dad survived and had repartnered and she was like, oh, dad, better do a will. And then yeah, she, her and the surviving, the new spouse of her dad, her stepfather, it was her same sex relationship, were sort of not seeing eye to eye on how the estate should be distributed. And she was obviously nervous about protecting her perceived rights under the estate and they came up with this wacky solution that I don't even think worked where the stepdad formally adopted her, like a woman in her forties. And I was like, I still don't think that works, but Jared and I had a big conversation because he's like, shouldn't the child get it? And I was like, well, not really.
(18:59):
She's a successful lawyer with no dependents. She doesn't even have children or a spouse, which I think she's got a dog and her stepdad, the new spouse is retired, no income earning potential and accustomed to living in a particular lifestyle. I think the surviving spouse will have a better claim against her. So we just had this whole conversation about moral claims on the estate and needs and older children, what are their entitlements? So I started planting the seed, but back to my kind of example, I was like, it's going to be a really hard exercise if he's got a new spouse. They live in a house where maybe my 1.2 million of life insurance has been contributed into the equity and say, our boys are older. Maybe they finished their schooling, maybe they have careers of their own. There's a younger child from the new relationship who has got all of their schooling ahead of them.
(20:02):
Still a financial dependent, really challenging exercise to try to do a fair split. There's also a huge risk or likelihood that the assets that I have left through the inheritance from me is intermingled into the assets of that new relationship, whether it's contributed into the house or just part of the, maybe he's made super contributions to the new spouse when she was on maternity leave, all kinds of things. Even if he does his best to try to ring fans, the assets that I've left him just for our boys together, his estate is still open to a family provision application from the new spouse and this potential new child, arguably they have a pretty high standing to claim against his estate and a need for a provision that my boys may not need depending on their age. So it just becomes so messy if I use a simple basic will versus if I have got my testamentary trust will, which I do suddenly Jared's will is basically irrelevant.
(21:16):
What I care about is my kids getting my million dollar life insurance policy and it being there for them, whether when they need it or when they become adults and want to buy a house or whatever. That's my main priority. Now in terms of making that happen, Jared's new will is irrelevant. I don't care. I don't care if he has a new spouse. I don't care if he has 10 more kids. I don't care what his will looks like because my inheritance has gone into a testamentary trust and I have set up the plan for that money now, right? Jared's the trustee of that and a beneficiary with my boys. But when Jared dies, then my brother and his brother become the joint trustees of that for the kids. So his will cannot gift the assets that are in the testamentary trust. I set up for them.
Carrie (22:11):
Of all states, but New South Wales, those assets aren't a estate asset, so can't over be challenged by the new family either. So you've got that added option in as well.
Tara (22:20):
Exactly. We're in Queensland, we are not worried about that. Now this is where people sort of start asking, okay, but what if he wants to actively unwind or dismantle the trust? And it's a very valid question. I will come to that. I just want to talk a little bit more about another permutation or related scenario, which is he doesn't die, he still has a new partner, maybe they have more children, he doesn't die. Instead they just get divorced like 10 years later or whatever. Again, with the basic will, the million dollars life insurance that I have left for him and the kids, it's in that property pool that the family lawyers are going to carve up. It's probably been intermingled in their assets. Like I mentioned before, he's really on the back foot in trying to ringfence my money that he got from me for our boys only.
(23:23):
It's going to all be on the table right now with the testamentary trust will, I don't want to say it's bulletproof, it's a perfect solution, but what I do feel Cnce saying is that it shifts the onus of proof. So with the basic will, he is the one who has to argue that the inheritance from me is out of the pool with the testamentary trust. His new spouse is the one who has to argue that the assets in the testamentary trust are in the pool. So they're out of the pool in terms of divisible property property that can be carved up and given to her in a property settlement. If we use a testamentary trust, it will of course be considered as a financial resource of his as it should. But in terms of like, okay, well if he has to give her a lump sum payment, my million dollars for the boys is protected.
(24:22):
It is ring-fenced in the trust. And what I also like is that having the testamentary trust in place creates an element of separation and diligence in terms of managing that money that a basic will doesn't in the sense that there's got to be a separate bank account for the inheritance in the testamentary trust. So it's already kept separate. There's financial statements. He's limited with the trustee powers. So going back to even David Lund's example that he wrote into us from episode eight, they might use their capital from my inheritance to discharge the mortgage and substitute the trust for the bank, but still there's a loan agreement that money still has to come back into the testamentary trust. So there's just an elevation of responsibility and record keeping that comes with the testamentary trust that doesn't, once you've got a basic will and the administration of the estate is over and that money hits his bank account, it's just like it's game over. It's like who knows how you can trace that money through to anywhere.
Carrie (25:38):
I think, and Tara, you might be coming onto this point, we don't necessarily share all our comments before we join on the chat, but I think I always say that the testamentary trust, as I said, it might not be bulletproof in every sense of the word. And certainly as law changes and evolves, we might be starting to see some things see through those sorts of structures, but it gives you options that you just don't have with a simple or a basic will. You don't have any options. One of the discussions that we talk about in the TT precedents club is that that concept of an alter ego, if they're the sole trustee, the main beneficiary and all the funds are coming out to them, and I think you might even have this on your list, but are they the alter ego of that trust? And therefore they can see through those sorts of structures. If Jared is looking to date someone later on, he can always add someone in to help control that trust. So it's very clear that that is not his asset, it's intended for your boys or he's just one of a series of beneficiaries to combat that discussion so that he has that option, doesn't have that option under that simple basic will approach.
Tara (26:41):
Yeah, exactly. Carrie. So that's sort of me trying to set the scene about why I favour a testamentary trust for young spouses, particularly where there is a real chance that they will. And yeah, back to this question that is often asked, what if Jared just tries to actively undermine the trust structure and to sort of explain why that is a real concern, let's have a look at the powers of the trustee and the appointor. So I'll start with the appointor. Obviously it depends on the terms of the trust deed. I'm sort of talking about the powers under the art of estate planning precedents and what is sort of common practise in the industry. But the role of appointor usually is just they can unilaterally change the trustee so they can dismiss the current trustee and put a new trustee including themselves into the role. So they're almost like the most powerful force in relation to the trust.
(27:44):
Next is the trustee. So the trustee has the day-to-day management of the assets in the trust. They are recorded as the legal owner holding the assets on behalf of the beneficiaries. And in the art of estate planning deeds, the trustee has power to wind up the trust, make capital distributions. They can literally distribute the entire capital of the trust out. They choose who gets the income entitlements each year or if it's accumulated they can make loans. It's really powerful. And so there is that question of, okay, well Jared is the sole trustee of the trust. He has entered a new relationship. Why wouldn't he just shut down the trust? Why wouldn't he just pull all the assets out and give them to himself personally? Not withstanding that I obviously don't have his new spouse included as a beneficiary of the testamentary trust. At least you can't receive distributions right away, but he could just distribute it all to himself and then take that into that new relationship.
(28:48):
It is a real concern or something to give consideration to. And my answer is I have chosen a middle ground where I don't have a hundred percent certainty, but we do have a lot of flexibility and I've favoured flexibility over certainty for my family situation based on how I anticipate Jared would act what I would like if he was the one who died and I was the surviving spouse and the surviving trustee, and I've chosen, I don't want to rule from the grave to that extreme. What I do want to do is set him up in a structure where he has the best advantage to keep the inheritance that I've left for him and the boys for them. So I trust he would not actively undermine or dismantle the strategy, and I trust that he would consult with our accountants and financial advisors, and I presume they would tell him to go and see a family lawyer and get the professional advice that he needs to, as you said, carry, add in a co-trustee release, lump sums as loans and not capital distributions. So I'm just doing my best to set him up in a structure that gives him the optimal protection and the optimal flexibility, trusting him that he is not going to actively undermine the strategy.
Carrie (30:23):
I think it's a good point too, Tara, and I'm not sure again if you're going to come to this point, but I have two clients or two sets of clients who have appointed a co-trustee beside their spouse from the beginning, and that's because of one of them is some trauma from her own family where they didn't get to see anything because it went to the new spouse and their father was vulnerable. And then another one is because of his medical condition, he might deteriorate quite quickly and it might not be able to step in soon enough. So that's the background there. But what I made very clear to both those people is that unless you give your spouse total control of a large share of the assets, they actually have a good claim on your estate anyway. So there's case law across Australia that shows that if you are not in sole control of a test testamentary trust, it's akin to no provision. And so if your will leaves everything into a trust that your spouse doesn't have sold control over, then that's akin to nothing. There are strategies where you can put lump sums inside trusts where there's joint controllers and give your spouse some assets, but just being aware that it's not this kind of fix all provision that in order to stop the spouse from doing stupid things, we're going to put a cot controller beside them because that spouse has a very real claim on the estate if you don't give them control of those assets.
Tara (31:42):
Yeah, I mean, Carrie, I think there's a real spectrum here in terms of are you just acting for one member of this couple who is doing their will in isolation and they're not even telling their spouse what they're doing or what I'm thinking of mostly is like you acting for a couple, you're in the room together and you're having open and candid conversations about what would work best. And even in that situation, I've definitely had clients choose to have a co-trustee for each, and I think it works nicely where you are mirror imaging the plan, so it's still fair and they've come to that conclusion jointly. I've also had clients where they might have a lot of moving parts in the estate, I hate to say it, but it's nearly always the male member of the couple is highly sophisticated. The female or I hate the word female, the woman in the couple is not highly sophisticated and not actively involved in their finances and there's quite a lot of structures and they've got a professional advisory team.
(32:53):
And in that situation, it might be that if the woman dies, the spouse who's already got active financial control is the sole controller. But if the husband dies, then the woman has got their trusted family office accountant or financial advisor as a co-trustee with them. And that is usually, I think there's an element of expectation that there's financial immaturity, but also even just to handle the burden of sorting everything out. So there's a whole spectrum of how you can set it up and what we've seen sometimes too, people agree to a hybrid strategy, and this is probably more for a higher wealth couple where there's a significant amount in the estate. I wouldn't do it if the entire state is going to be $500,000, but where there's a fair bit of cash involved, maybe there's the main testamentary trust that does have some checks and balances in the control of the main testamentary trust, and then there's an additional testamentary trust that has got fun money or pub money or whatever that the surviving spouse does have total control over.
(34:11):
And it might have, I mean the examples are like a million dollars, that's their funds spending money. So you can sort of see what kind of estate we're dealing with. But you can have a hybrid situation too where you're like the core asset, especially if it's an intergenerational and sentimental type asset that might've been inherited from one family side and is really needs to keep going down the bloodline or through the lineal descendants. You set up joint control and checks and balances for those assets, but then you have the spouse with their own control and they can do what they want and you don't really care or it's not a disaster if they go and blow through that other trust that was just for theirs. You can really cut and dice it any way you like.
Carrie (34:59):
I think too, using the word hybrid's interesting as well, Tara. I think thinking about a spouse, that scenario you said where one spouse isn't particularly good with managing funds, you can use the trustee in appointor powers to still give them ultimate control, but to have someone help them with regulatory stuff. So for example, in my wheel, I've got my brother as the sole appointor, but I've actually got a co-trustee beside him because as much as I love my brother, he's not good with the paperwork. And so I've appointed someone beside him to make sure that he does the important stuff that you legally need to do so that you're not in big trouble as a trustee. And so if that person that I've picked to put beside him isn't working for him, he can always take them out. But I want someone there from day one so that they get him on the right track. And then I've used my letter of wishes to say, Hey, got you on here for these reasons. If you think my brother's okay, it's my expectation for you to step off and I trust that person, they are a good friend of mine as well. So there is that way that you can give the sole surviving spouse the actual control, but if you're worried about some of that day-to-day stuff, you can have someone else helping them out.
Tara (36:08):
Totally. That's a great point, Carrie, because it's a big burden. It really is. I mean, you are going through it now, it sounds like an extra full-time job. It's a huge responsibility while you are managing the grief, while you're trying to find a new way of life. And if there are children as well, pick up the pieces for them,
Carrie (36:33):
Tara, I had to go and open just a trust bank account and it's getting harder and harder to open a trust bank account. And I actually said on the phone to the representative from the bank that I chose, I'm having trouble with this and I'm a lawyer that deals in this area. Can you imagine a spouse losing the love of their life plus trying to do stuff like that with absolutely no financial acuity, let alone legal acuity. So I just think that there are ways that you can get the outcome you want without making your spouse feel like they've got someone watching over them at all times.
Tara (37:10):
And I think that's why open candid, frank conversations around and especially when it's a couple together and it's like what's good for the goose is good for the gander. You can sort of decide together where does everyone want to fall on all of these issues and help them decide. And I wouldn't say that it's often a really big conversation or takes a really long time. There are situations where that can be the whole issue because underlying trust concerns, but often it maybe it's five minutes, 10 minutes airtime. I think it's really important to play out how's this going to work practically and what is more important to you, certainty or flexibility, and let them decide once you've set them up with the information where they want to sit on that.
Carrie (38:05):
I think that comes back to, I mean we've talked about it again and again. It's not our job to pick for the client what is right for them. It's our job to give them what we think are the options based on their circumstances and the effects of those options and that it's ultimately up to the client, the way that they structure their estate plan.
Tara (38:21):
Yeah, yeah. I said at the very beginning of this, I wouldn't necessarily bother setting up a testamentary trust for a surviving spouse where they're in baby boomer era, but I also think that that is potentially worth testing as well because what's that saying? Women mourn and men, and it goes both ways, right?
Carrie (38:44):
Tara, you are preaching to the choir with this. You are preaching to, my people will know. I've lost both my parents, and I remember when we were younger, I was talking to my mother about, we always knew that she was going to go first. My father, their family like cockroaches, they lived for decades. And so he's the rare one. But I sort of said to her, I'm going to be horrible to my dad's new girlfriend. And my mother said, don't you dare. She said, you are to be nice to your new stepmother. She said, I on the other hand, we'll haunt him.
(39:14):
I told him this after she'd died and he thought that was the funniest thing he'd ever heard. I actually think he believed it was true, but it's very true. My father was a little bit of a casanova. And so I think that it is very much specific to their circumstances. Now, we didn't use a trust in my mother's will because almost everything was owned joint tenants or inside structures for my family. And the only, I think it was about $150,000 that was all that was going to my father in terms of through the estate itself. But certainly if there was more, I would've been put in a testamentary trust in place because I absolutely knew that there was going to be more ladies on the scene if my mother passed away. So I think it is, as you said, a case by case scenario where you have to consider just because this rule is kind of the rule of thumb doesn't mean it's the rule that you apply for all your clients.
Tara (40:02):
Yeah, exactly. And I think you've just demonstrated that perfectly in my parents will. They've got testamentary trust, but they're only really for us kids. And I just think about my dad getting his head around complex testamentary trust structures and most of their money's in property and super, it's just not worth it. But I'm a lawyer, my sister's an accountant. We'll teach our brother what he needs to know. We do have the sophistication to manage them. So again, it's like a compromise. And yeah, I don't even, I'll be sitting there like Helen and Fisk if my mom dies and my dad re partners, which she probably would just to have someone do the cooking and cleaning.
Carrie (40:48):
I think it's interesting too, Tara, I just want to talk a little bit about one of the other reasons why you might actually, even if they're a baby boomer, still bring in a testamentary trust. And I think this should never be your soul or your driving force behind anything but taxation. So if the amount of money coming through the estate is significant and has the ability to generate some nice income, we know that those special income tax rates apply to grandchildren as well. So if I think about if my mother's estate was worth, say, $5 million and we put it inside a testamentary trust, my father's already was already on a good wage, and so instead he could have been applying it to my brother who's on a trade wage, which is much lower to my niece and nephew. So taxation should never be the driving force behind your estate plan, but certainly it's one of the few nice breaks that you get from when someone passes away. And so if the value of money going into a testamentary trust will generate some nice income, it is certainly one of the things that you should consider.
Tara (41:46):
Totally. Actually, maybe I should revisit that and because now that I helped mom and dad with their wills before I had kids, and now I would definitely be putting the hard word on for some help with the childcare and the private school expenses.
Carrie (42:04):
But yes, it certainly is a case by case scenario.
Tara (42:08):
And in terms of bringing this up with clients in the meeting, I feel like it's an intense conversation, but I feel like you can bring a little bit of levity to it by, I sort of make a joke about, okay, picture this, and I think I start with the woman usually first and I'm like, imagine the pool boy, Javier or whatever, and then and imagine your new girlfriend and just to try and practically set a scene, but keep it light and let them, because basically it's like how much do you trust your spouse, which is a heavy question. I don't know, Carrie, you've always got techniques and little things.
Carrie (42:53):
I try to bring humour in from the very start. Okay. Because I think that it makes it easier to have some of those discussions. There's clients where humour is not going to be appropriate, and you can usually tell that from the minute you pick up a phone to talk about whether they even engage you. But certainly I sort of talk about it in a scenario. Sometimes I use personal stories and very much living my own dream in that process at the moment. And if not using some sort of statistics as we've talked about it is just statistically more common for a man to repart. Or I'll say things like if it's a young couple, I'll say to let's just say the husband or the wife. I'll say, you are quite young. You've obviously married this person for a reason. They're pretty great. If something happens to you, they're still going to be pretty great and they might meet someone else that likes them as well.
Tara (43:44):
Oh, I love that.
Carrie (43:45):
So putting it back on saying this person, you've picked them and they're fantastic. They don't change from being fantastic just because you're not here. And we want them to have the freedom and the choice to live a long and happy life, and we don't want them to be miserable, but we also want to think about if they are going to be happy and that does look like being with someone else. Do we want to protect against that?
Tara (44:07):
Yeah, I love that. That's a really great way to present it.
Carrie (44:11):
Yeah, I mean you could have the total alternative you like my mother and I did, and any money that ends up with my father's new girlfriend, they deserve because they have to put up with it. That was my mentality and certainly I think my mother might rethink it now, but certainly that was a bit of a joke that sometimes you just think children are adult, they're totally able bodied, they'll be right. Okay, but you might not have that kind of charitable mindset.
Tara (44:40):
Yes. Well, it was really interesting talking to Jared about this on Fisk because obviously I've got the benefit of understanding the policy behind family provision application. And it's not about what's right or preserving lineal descendants. It's about supporting people and stopping them from being supported by the government. And was Jared was just like, the child deserves it, that money needs to go to the child. And I was like, I don't like her chances against this ageing surviving spouse who I don't think they had many assets of their own when she's a successful lawyer with no dependent, I don't think she's going to have much of a case.
Carrie (45:24):
I think that Lemon v Mead case, that diamond stud guitar case is a really good thing to go through and read them all to see how the court swings from providing for a child as kind of a share of the estate versus where they got to in the end, I believe, which is what does that person actually need? What does that young person need to put a roof over their head, educate them, feed them. It's no longer just you deserve a share of the estate. It's what that person needs.
(45:55):
And again, we've seen changes coming into succession legislation potentially. I mean, change of government means they might not be coming in, but they were talking about it last year around things like adult children, not necessarily automatically having a right to claim on an estate depending on the size. So I think I'm watching the space very carefully, but I think we're seeing a trend in cases where they are looking at the needs and as you said, a surviving spouse repartnering with someone and their new partner being very much dependent on setting their life up around having that person versus an adult child don't like the chances.
Tara (46:33):
Yeah. And for people listening, that's the Queensland proposed changes to the succession act. We're both Queensland based, so we've been paying close attention to that. Hey, Carrie, I reckon we're almost veering into a new topic. Absolutely. So maybe we should wrap it up. Do you have anything else you wanted to say?
Carrie (46:54):
No, no. I think I've shared all my stories.
Tara (46:57):
Yeah, I'm looking at mine and I think that's it. I'm sure people listening will have plenty of stories. So if you do have any that you want to share with us, as always, you can post it or share it in the Art of Estate Planning Facebook group. We love to hear these different scenarios. If you don't agree with things we've said or there's reasons that we haven't thought of as well, I'd love to hear. I think this is a really evolving discussion and it's definitely something I think that the more life experience and the more I see things working or not working my position on it evolves. So I love to keep that dialogue open. What we might do is wrap it up and we would love for you to join us next week. Thanks for listening.
