1. Estate Planning Knowledge Sharing Session 5th & 12th Feb 2013 Ken Robertson, Director & CEO QLD Hayes Knight (Qld) Pty Ltd Copyright Hayes Knight (Qld) Pty Ltd

2. Loss of capacity SMSF trustees  A member must be a trustee  If a member is incapable of acting as a trustee then fund may be non- complying  Enduring Powers of Attorney (EPA) are so important for all trustees  Trust deed must allow for EPA’s to act as trustees  In instances where a member dies their legal personal representative (LPR), usually their estate’s executor can step in as trustee and if the deceased was taking a pension the fact that it ceases pension phase doesn’t make income earned after death assessable income of the fund Copyright Hayes Knight (Qld) Pty Ltd

3. Death Carrying on a business  For businesses at DOD S 70-105 requires stock to be valued at market not cost unless LPR continues to carry on the business for S 70-45 to apply. NB special rules for crops apply where stock can be valued at Nil.  After DOD, where shares are held by a LPR or transferred to beneficiaries in an operating company with carried forward losses be aware COT is not impacted and so the losses remain available to the company (S 165-205).  Small business CGT concessions apply to a LPR or beneficiary as they would have applied to the deceased just prior to death up to a 2 year period after DOD. After the 2 years a LPR or beneficiary must actively carry on the business of the deceased if they are to use these concessions in the future. This includes being a partner in a partnership.  Div 7A loans  If LPR or beneficiaries fail to make loan repayment deemed dividend provisions are normally triggered (Section 109E)  Not the case with deceased estates as S 109E requires commonality between the borrower and the deemed dividend recipient Copyright Hayes Knight (Qld) Pty Ltd

4. Disputes between family members  Involve family when doing the Will  Family needs to understand why the Will has been drafted the way is has and that advisers are just that and not influencers.  Who makes the best executor? Executors can always access professional advisers for technical help. (http://goo.gl/9AS3T)  Some family members might not want to act as executors  With blended families document everything in the Will or a Memorandum of Wishes so nothing is left to chance, like who gets the ashes or what is to happen with them? Copyright Hayes Knight (Qld) Pty Ltd

5. Case Studies in Estate Planning Australian Story – Diane Cilento Died 6 Th October 2011 – intestate Married to Andrea Volpe – Daughter Giovanna Married to Sean Connery - Son Jason Connery Married to Tony Shaffer who died in UK Nov 2001, but not before taking a mistress in the UK where he was recuperating from surgery Assets include property at Mossman featuring the Karnak Playhouse half of which was gifted to Tony so was included in his Estate Estate issues for Shaffer (still going after 11 years in court) included residency for death duty purposes in UK and under UK succession law mistress was entitled to claim on his estate Copyright Hayes Knight (Qld) Pty Ltd

6. Case Studies in Estate Planning Katz vs Grossman Facts  Mr & Mrs Katz had a SMSF. Both were members and trustees  Mrs K dies and leaves a death benefit of $550k to Mr K  Mr K appoints his daughter as trustee to comply with SIS regulations.  Mr K does a non-binding death benefit nomination in favour of a 50% split of his members balance to daughter & son. Member’s balance was $1m.  1 month prior to Mr K’s death, daughter applied for super fund membership, which she duly granted herself as trustee  After Mr K’s death daughter appointed her husband as trustee  Trustees made entire death benefit payment to daughter  Son fought this in court and lost Copyright Hayes Knight (Qld) Pty Ltd

7. Case Studies in Estate Planning Katz vs Grossman Outcome  Court approved costs of legal action to be paid by SMSF, so payout to daughter was substantially diminished Remedies  Binding Death Benefit Nomination if deed allows (check expiry date)  Change trustee to Company and appoint Mr K as sole director on Mrs K’s death. Leave shares in company to son & daughter so they can be appointed as directors after Mr K’s death Lesson  Proper tax planning can avoid unexpected estate beneficiaries Copyright Hayes Knight (Qld) Pty Ltd

8. Case Studies in Estate Planning “Gorton Company” Facts  Mrs A was governing director and held 10 “A” class shares which entitled her to 76% of company voting rights  Family held 1000 shares each, “B”, “C” & “D” class shares  Upon Mrs A death the “A” class shares rank equally  Company held substantial publically listed shares  Her wish was to keep the company going after her death to provide an income stream for the family. Copyright Hayes Knight (Qld) Pty Ltd

9. Case Studies in Estate Planning “Gorton Company” Estate Planning Exercise  Share split of “A” class shares from 10 to 9500  Mrs A left her “A” class shares to a testamentary trust requiring 100% agreement of trustees for all decisions  Trustees are sisters B & C + professional adviser  Family not involved in the Will making process Outcomes  Post-death sisters B & C don’t get on  B wants to keep things as is C wants to wind it all up  C makes life for other trustees a nightmare and eventually gets what she wants – trust dissolution  End result CGT liability of $800k Copyright Hayes Knight (Qld) Pty Ltd

10. Case Studies in Estate Planning “Poorly Advised Will” Facts  Mr M has a young daughter with his ex-wife  Will appoints his sister as Executor  He has $16k in a bank account and $200k in super  He dies  His sister controls his $16k bank account  His ex-wife controls his super death benefit that the trustees pay to his dependent daughter Copyright Hayes Knight (Qld) Pty Ltd

11. Case Studies in Estate Planning “Poorly Advised Will” Outcome  Exactly what was not intended ie. Ex-wife controls the vast majority of Mr M’s estate Remedies  Binding Death Benefit Nomination if deed allows (check expiry date)  Child allocated pension to daughter provided trust deed allows (taxed at adult rates with 15% pension rebate) approx. $27,600 of pension tax free per annum Copyright Hayes Knight (Qld) Pty Ltd

12. Case Studies in Estate Planning “DIY Will” Facts  Mrs R has substantial property holding  Mrs R prepares her own will and leaves her properties to her family  Mrs R gets the property descriptions wrong in her Will  Mrs R dies and the executors need to go to the Supreme Court for the court’s direction to the Titles Office to register property transfers Outcome  Legal fees here far outweighed the cost of a good estate plan  Another beneficiary introduced into the estate Copyright Hayes Knight (Qld) Pty Ltd

13. Other Things to Be Aware Of:  3 year rule for keeping estates alive  Joint tenancy assets e.g. IBD’s or term deposits  Forgiving loans to family companies or trusts  Spouses divesting assets e.g. Surgeon and his family home  Unused annual and long service leave payments form part of the estate corpus and are exempt from tax  Anti-detriment Payments – non-assessable payment to deceased member’s dependants for the amount of tax paid on the total earnings of the member’s fund balance (trust deed must allow for these payments)  Google Alerts  Estate Tax Planning Australia Blog – www.estatetaxplanningaustralia.com.au/ Copyright Hayes Knight (Qld) Pty Ltd

14. The End Thank You Copyright Hayes Knight (Qld) Pty Ltd