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Protecting Assets Across Generations Part 1

This is the first article in a series addressing the ways in which the wealth you have accumulated during your lifetime, or inherited upon the death of another person, can be needlessly lost.  We examine ways that the risk of this loss can be reduced or prevented altogether.

The Financially Vulnerable

Financial difficulties and bankruptcy have become an all too real fact of life in modern Australia.  Unfortunately, some family members feel that there is still stigma attached to financial problems however they arise and unwisely choose to hide the extent of their troubles from their loved ones.  Other family members do not realise that cash, property and other assets left as inheritance to bankrupt persons or the financially unstable who may subsequently become bankrupt, are not quarantined from bankruptcy laws and can be used to pay debts owing to creditors.

What is a Beneficiary?

A beneficiary is the name given to a person who is named in the Will of another as the recipient of a gift of cash, property or other assets.  The gift, sometimes called a bequest, may be direct or given indirectly on trust, or may be gifted gradually by way of an annuity or other form of income over time.  A beneficiary may receive an inheritance under a Will in the form of a life interest in an asset or a right to receive any income it generates.  The nature of a gift that a beneficiary can receive under a Will can take many forms.

Are You a Beneficiary and Bankrupt or Experiencing Financial Difficulty?

If you are bankrupt, experiencing financial difficulties or plan to apply for bankruptcy and know that you are a beneficiary in another person’s Will or have a reasonable expectation of being included as a beneficiary in another person’s Will (for example, you have one or more parents who are still alive, a spouse who will not be affected by your bankruptcy, or a relative or friend with whom you are close who is unlikely to gift their assets to other persons), we recommend that you have an honest discussion with the will maker about your financial troubles. 

You should highlight to the will maker that any cash inheritance you receive will be paid direct to your Trustee in Bankruptcy and applied in payment of your debts.  Assets you receive may be sold and the proceeds similarly applied.

Rapid Legal Solutions can work with the will maker to protect the wealth they worked to accumulate to ensure that the inheritance that is to be left to you is not lost to your Trustee in Bankruptcy.  Depending upon the nature and size of the inheritance you are to receive as well as your personal and family circumstances, there are a variety of cost-effective, short- and long-term solutions to meet your needs and the needs of your family and the will maker.

Is Your Beneficiary Bankrupt or Experiencing Financial Difficulty?

If you discover that one of the beneficiaries named in your Will is bankrupt or experiencing serious financial difficulty that could lead to bankruptcy, we recommend that you contact Rapid Legal Solutions immediately to review your Will and determine if it needs to be updated.

If your beneficiary is bankrupt or financially stressed, this does not mean that you must exclude them from your Will.  However, unless you properly structure your Will, the wealth you intended for them will most likely end up in the hands of their creditors and your beneficiary will not benefit from it personally.

 There are several ways that your beneficiary can still benefit from the inheritance that you intend to leave him or her, despite the financial difficulties or bankruptcy that he or she is suffering.  Rapid Legal Solutions can discuss these options with you and find the solution right for your circumstances and budget.

What about Superannuation?

Don’t forget superannuation!  Having a properly drafted Will is not sufficient protection for the debt laden or bankrupt beneficiary if the Trustee of your superannuation fund gifts your superannuation death benefits direct to your bankrupt eligible death benefits beneficiary!  Superannuation death benefits do not automatically form part of your estate to be dealt with under your Will.

Rapid Legal Solutions can work with you to review the whole of your assets base including your superannuation and any other assets, such as the wealth of family trusts that you may control, to ensure that this wealth does not fall into the hands of a Trustee in Bankruptcy.

Summary

There is no shame in suffering from financial hardship or being bankrupt.  The true shame is not disclosing this to the ones we love and seeing the executors of a loved one’s Will writing your inheritance cheques out to your Trustee in Bankruptcy when your family could really use the money.  It also hurts to know that your loved one worked hard to accumulate that wealth and wanted you to benefit from the gift that you cannot keep.  Unaware of your financial situation, your loved one would not have considered the possibility of you losing it to the Australian Taxation Office, your bank or other creditors.  If you find yourself in this situation, tell those family members who you think may have named you as a beneficiary in their Will.  Their Will should be reviewed by Rapid Legal Solutions and steps taken to protect your inheritance.

Our loved ones may enter bankruptcy or become financially unstable during their lifetime.  If this happens and they are a beneficiary named in your Will, then depending upon the type of gift (for example, cash, real property, or personal property, and its value), your beneficiary will likely not be entitled to keep that gift and the gift will be used to pay his or her creditors.  If a beneficiary named in your Will is bankrupt or financially unstable, you should have Rapid Legal Solutions review your Will so that steps can be taken to protect the inheritance you intend for your beneficiary. 

If you would like assistance or further information in relation to how to structure your Will or Estate Planning in the face of bankruptcy or financial difficulties, contact Rapid Legal Solutions on (07) 4755 9100.


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