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Wills & Estates Newsletter Edition #2 – October 2016

Published on October 26, 2016 by Josephine Heesh and Patricia MonemvasitisJosephine Heesh and Patricia Monemvasitis

In this edition our team report on:

1. Failed testamentary gifts;
2. Letters of wishes and their role in Estate Planning; and
3. Inheritance tax issues for people who have lived in the UK.

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Initial Failure of Testamentary Gifts

On 28 October 1990 Mr Harold Broadman a builder and carpenter late of Leura died leaving a wife, Myra “Mabs” Broadman, and a Will dated 5 December 1984.

In his Will, Mr Broadman directed that 95% of the residue of his $3.37 million estate be left to “The Cancer Research Foundation.” Surely The Cancer Research Foundation would have been thrilled by such a generous gift!

That is, if it existed.

Testamentary gifts may lapse or fail in circumstances where

1. the named recipient does not exist, or
2. the gift is impractical or insufficient for the stated purpose.

We examine each in turn.

Read more

Here are a few things you should check:

1. Is your suggested wording readily and easily available on your website?
2. Does the wording contain your organisation’s full name, ABN and address?
3. Does the wording adequately disclose the purposes for which your organisation can apply bequests?
4. Does the wording provide guidance on how to make a:
   a. general purpose bequest (e.g. “I give $[AMOUNT] to [ORGANISATION] for its general purposes”.)?
   b. specific purpose bequest for scholarships and bursaries? (e.g. “I give $[AMOUNT] to [ORGANISATION] to establish [SCHOLARSHIP/BURSARY] for [SPECIFIED AREA]”.)
   c. specific purpose bequest for research? (e.g. “I give $[AMOUNT] to [ORGANISATION] for research in the area of [INSERT AREA]”.)

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Letters of Wishes and their role in Estate Planning

Letters of Wishes (sometimes called Memorandum of Wishes) are non-binding documents that provide guidance as to the object and purpose of Estate Planning documents and also allow the formal documents (such as a Will or Trust instruments) to remain flexible and broad.

Common uses include:

• Wills – to provide guidance to the Executors and the Trustees of Trusts established under the Will.
• Minor children – to provide guidance to Guardians of minor children appointed under a Will.
• Potential contentious Estates – to provide reasoning to the Executor as to why a certain beneficiary is not named in a Will.
• Discretionary Family Trusts – to provide guidance to the Appointors, Guardians and Trustees.
• Charitable giving – to provide named Beneficiaries of a Will with an understanding that the Testator intended them to pass gifts left in their names to certain preferred charities .

Care must be exercised when drafting Letters of Wishes so that they are not deemed to be “informal wills”, as if drafted incorrectly, they may conflict with the main Will and expose the estate to litigation. The Letter of Wishes should:

• be addressed to the correct person (e.g. the executor or the trustee of a relevant trust);
• contain a statement to the effect that the maker understands that it is unenforceable;
• state that it is not to be read as a formal testamentary document;
• be marked as private and confidential;

and should not:

• fetter a trustee’s discretion;
• contain directive language; and
• impose any legal repercussions if it is not followed or if it is disregarded.

The case of Monaghan v Monaghan [2016] NSWSC 1316 explores Letters of Wishes in practice.

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Patricia Monemvasitis Partner
Michael Crowe Associate

 I still call (the United Kingdom) home – UK inheritance tax in Australia

Recently we assisted clients who, although on the surface were Australian, had a past in the UK.

Their story was not unusual. Born in Australia, Australian citizens, moved to the UK after university to enjoy London and travel through Europe, 8 years later they returned back to Australia and then 12 years after that they decided it was time to sort their estate planning. The alarm bells started to ring as they explained their continued asset holding back in the UK.

• The first ring: who will get the assets upon death (there was no UK will)?
• The second much louder ring: what assets will be left after UK inheritance tax?
• The final gong: can their Australian assets be clawed into the UK inheritance tax regime?

United Kingdom considerations

The UK has a unified estate and gift tax called inheritance tax (IHT). Key elements of IHT are:

• it applies to the value of your estate (your property, money and possessions) at the time of your death;
• it is charged on your estate at the rate of 40%;
• if you reside in the UK and are domiciled in the UK, IHT applies to your worldwide assets;
• if you reside outside of the UK, however, you are domiciled in the UK, IHT applies to your worldwide assets; and
• if you reside outside of the UK and you are not domiciled in the UK, IHT applies to your UK assets only.

Deemed domicile

Even if you are not domiciled in the UK, you are deemed to be domiciled in the UK for IHT purposes if you:

a. reside in the UK for 17 out of 20 years prior to your death; or
b. you die within three years of ceasing to be domiciled in the UK.

Read more

Patricia Monemvasitis Partner
Michael Crowe Associate