The Importance of Having a Will
It is vitally important for individuals to consider the distribution of their current property and assets upon their death. A diligent lawyer will not only consider the present position of the testator’s chosen beneficiaries, but also the likely evolution of their situations. A prudent lawyer will account for a number of factors effecting the efficient and desired distribution of a testator’s assets. These factors can include the dissolution of marriages, or the death, incapacity or bankruptcy of beneficiaries.
Simply put, a well written will should clearly delineate the assets to be distributed and to whom they are to be given. It will also preserve the family legacy and treasured gifts and investments left behind by a testator. Ideally the distributions will be carried out smoothly, with the trustee or executor depositing relevant property with each beneficiary. However, this is not always the case. If a beneficiary were to become bankrupt, certain property given under the will would then be vested in the bankruptcy trustee.
The Dangers of Bankrupt Beneficiaries
When an individual becomes bankrupt, a bankruptcy trustee is appointed to manage their financial affairs and see to the payment of certain debts. The property of the bankrupt then becomes vested in the bankruptcy trustee (although there are certain types of property that are excluded under the law including necessary items for earning a living and maintaining a basic standard of living). Acquisitions of property during the period of bankruptcy are generally vested in the bankruptcy trustee for the satisfaction of creditors. This means that an unprotected gift in a will would generally see the assets, money or property the subject of the gift transferred to the bankruptcy trustee. The bankrupt beneficiary then becomes a fluid channel through which certain family assets may flow.
This can be a concerning realization for a testator with financially unstable beneficiaries in mind. A panicked testator’s thoughts may roam to leaving fiscally precarious beneficiaries without some form of lasting gift or provision.
Luckily, there are some pre-emptive steps for concerned testators to take to help better secure their family wealth. While other options may be considered, one of the best pre-emptive measures to be taken is for a testamentary trust to be designed as part of the will.
Protecting Your Assets – Testamentary Trust
A testamentary trust is a protective mechanism through which a nominated trustee carefully manages and distributes the benefits of gifts, assets and other trust property. The trustee is charged with the duty of maintaining and managing the trust property (as designated through the will) for the absolute benefit of the specified beneficiaries.
The protective element of a testamentary trust is that the property subject to it is legally vested in the trustee for the equitable benefit of the nominated beneficiaries. This means that it allows the beneficiary to receive the benefit of the gifts, but without actually legally and technically owning them, thus placing them out of reach of creditors.
A testamentary trust satisfies a number of interests at once. It sets the testator’s mind at ease knowing that their precious assets or gifts will not be lost into the hands of a beneficiary’s creditors and it provides for a beneficiary that would otherwise likely be left without a lasting gift. With proper consideration and skillful drafting, as well as a wise choice of trustee, a testamentary trust can ensure that the interests of a bankrupt beneficiary in a will are adequately protected.
On the technical side of the trust, there are a number of factors to be considered. Some of these are:
- Selecting a suitable and reliable trustee (or trustees);
- Considering replacement trustees;
- The directions for management of certain categories of assets and gifts; and
- The continual tax management of the trust.
While there are a number of technical aspects to consider when drafting an effective and efficient testamentary trust framework, the benefits are worthwhile. A skilled and prudent lawyer will be able to provide detailed advice as to the construction of such a trust and as to the continued management and maintenance of the gifts vested in the trustee.
If you are concerned about protecting your family assets from the hands of bankruptcy creditors and would like to discuss your options, call Boss Lawyers today for a confidential consultation about your legal position.
If you have not yet had a will drafted, or require your will to be updated due to changing family or personal circumstances, us to discuss your options for creating a firm and effective will.