Estate Planning & COVID-19: Have your parents got you covered?

COVID-19 is already affecting Small Businesses and Employees in many industries and is also a major risk for the elderly. What will happen if you lose your parents to the Coronavirus at a time when you are facing bankruptcy or financial hardship? Your parents’ Will could protect your inheritance from creditors, banks and even Bankruptcy.

COVID-19 has already had a huge impact on our lives and for some of us the impact has or may be significant. As Lawyers our job is to identify risk and find a way to remove or at least limit the risk.

A Multi Generation Issue

Our older generations are at greater risk of dying from the Coronavirus while younger generations are facing an increased risk of financial hardship or even bankruptcy due to the forced closure of businesses and loss of employment. Every day I hear more stories both on the news and from people around me of redundancies, casual staff being stood down and employment being terminated. Meanwhile, the bills continue to roll in for our homes, our credit cards, our purchases made on credit, not to mention Afterpay!

What concerns me as an Estate Planning Lawyer is the increased risk of entire inheritances being claimed by creditors or a Trustee in Bankruptcy.

So, what can be done?

Discretionary Testamentary Trust Will

If we consider a situation where a person is leaving their Estate to their child, a standard Will leaves the inheritance to the child directly or absolutely. The inheritances passes for the benefit of the child (and their creditors) and is free for the taking by any Trustee in Bankruptcy or a creditor who is owed a debt or has some other claim against the child.

However, a Will can be drafted so that upon the death of the Willmaker a Discretionary Trust is created for each child that will inherit the Estate. When a Will creates a Discretionary Testamentary Trust, the inheritance passes to the Trustee of that Trust (often the child) who holds the inheritance on trust for the beneficiaries of that Trust (typically, the child and their family). As the child has not received the inheritance absolutely, the inheritance would not be available to the child’s creditor or form part of their Bankrupt Estate. Instead, the child only receives the inheritance or parts of it absolutely when the Trustee exercises a discretion to distribute money or assets from the Trust (such discretion should be exercised after obtaining legal and accounting advice).

Whilst Discretionary Testamentary Trusts also have significant advantages for implementing tax minimisation strategies in relation to income or capital gains derived from an inheritance, the asset protection benefits of Discretionary Testamentary Trusts should never be over looked. With the wealth of the aging population being greater than ever, and a pandemic upon us that is putting that demographic at significant risks, now more than ever business owners and other at risk individuals should be insisting that their parent’s Wills create Discretionary Testamentary Trusts.

How can we help?

If you have parents in the at risk category for COVID-19 and their Wills do not create Discretionary Testamentary Trusts for you and your siblings, you should encourage them to contact us on 1300 553 343 or to discuss their Wills and Estate Plans and our fixed fee option for Wills creating Basic Discretionary Testamentary Trusts.

By Rebecca Wosman,
Associate Solicitor