The will as an effective estate planning tool…but not your will

One of the most effective means of asset protection is in fact the diversion of an expected inheritance from the individual beneficiary of that inheritance to their family trust.

Friday, February 1st 2002, 2:07AM

One of the most effective means of asset protection is in fact the diversion of an expected inheritance from the individual beneficiary of that inheritance to their family trust. Sadly, this simple means of protecting an inheritance is often overlooked by simply not communicating with certain family members when undertaking estate planning.

Let us assume that there has already been established a family trust for some, if not all, the reasons discussed in previous Good Returns articles. In line with sound planning practices, over the years a gifting programme has been carried out to reduce the trust's indebtness to the settlors of the trust. Gifting at the rate of $27,000 per year for each settlor ($54,000 per couple ), effectively the settlors have removed from their ownership a substantial amount of their wealth to their trust.

However, should one, or both the settlors inherit in their own names, substantial investments from say a deceased parent, then the good planning and effective use of their trust to protect their assets may well be negated to a considerable degree. It will now become necessary for them to implement a further sale of the inherited assets to their trust and the implementation again of another gifting programme. If the assets inherited were valued at say $400,000, this will mean a further 14 years of gifting to avoid paying gift duty. In addition there will be the costs of sale of the assets to the trust and the continuing gifting programme.

In this hypothetical case, if the settlor had discussed his/her expected inheritance with the parent and asked for the parent's will to name the settlor's trust as the beneficiary, the $400,000 inheritance would have passed direct to the trust on the death of the parent pursuant to the will. No gift duty, no gifting programme needed and no costs.

Whilst this may not be possible in all cases, in an harmonious family able to discuss such matters, a simple change of beneficiary name in a will can produce a much more effective result when estate planning is needed.

This article is written by TOWER Trust

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