A person’s Will only governs assets that form part of their “estate”. Therefore, when a person dies, a key responsibility of their executor is to identify which assets do, and which assets do not, form part of the estate.
Whilst this distinction may appear obvious, there are several assets that people typically consider part of their overall wealth, that will not form part of their estate, to be governed by their Will.
But even where an asset may not strictly form part of an estate, it is important for an executor to appreciate how it is dealt with, as it may require involvement from the executor, or it may ultimately impact the distribution of estate assets.
For an executor to fulfil their role properly, in a manner that reduces their exposure to liability, it is therefore crucial that an executor understands the difference.
Estate assets
Only the assets (and liabilities) that are owned personally by a person, will form part of their estate. This typically includes assets such as shares, bank accounts and real estate, that are registered or owned in the name of the deceased. Whilst this is not always the case, it is a good starting point.
Where the asset does not have a formal register of ownership (like personal items), then further investigation is required to determine the beneficial owner and will depend on the circumstances surrounding its acquisition and ownership.
Non-estate assets
The following are examples of assets that will not form part of an estate and will require different treatment.
Jointly held assets
Assets that are jointly held by the deceased and another person typically do not form part of an estate, as they are dealt with in accordance with the principle of survivorship, meaning that the deceased’s interest in the asset will automatically pass to the surviving owner. This is because the deceased and the surviving owner did not hold separate severable interests in the asset – but together held an interest in the entirety of the asset.
The most common examples are the jointly held matrimonial home and jointly held bank accounts. It is for this reason that a person may not leave an estate when they leave a surviving spouse.
However, the precise form of joint ownership is important. In relation to real estate, the principle of survivorship will only operate if the property is owned with another person as ‘joint proprietors’. If it is owned as ‘tenants in common’, then the deceased’s interest in that property will form part of their estate and their executor will be obliged to deal with it as part of the administration of their Will.
Superannuation
Superannuation does not automatically form a part of a person’s estate. This is because super is held in trust for the person by the trustee of the superannuation fund.
Though, whilst super may not initially form part of the estate, an executor must make enquiries with the superannuation fund as to where payment is proposed to be made, including whether the deceased left any binding nominations.
The executor should also consider making a claim for payment on behalf of the estate given their obligation to maximise the assets of an estate for the benefit of the beneficiaries, which obligation can cause a conflict of interest for the executor, if not handled carefully.
Where payment will ultimately be made depends on several factors, including whether a binding nomination was made and whether the deceased left persons who are considered dependents for superannuation purposes.
If the super is ultimately paid to the estate, then the executor must deal with it in accordance with the person’s Will.
Assets held in trusts
Assets held in a trust do not form part of a person’s estate.
This is because trust assets are not held personally by the deceased person and remain assets of the trust to be dealt with in accordance with the rules of the trust (which are typically set out in a ‘deed of settlement’). This is the case even where the deceased funded the acquisition of the assets or is the ‘primary beneficiary’ of the trust.
To complicate matters, it is not always obvious when somebody owns assets personally or as trustee of a trust and trusts may be implied (as opposed to express), such that their existence is not always apparent.
And even when a trust exists, an executor must examine whether there are any interests or roles that they need to consider; for instance:
- whether the trust owed the deceased person assets (such as beneficial loans or unpaid present entitlements); this will typically be evident upon examination of the trust’s financials; and
- whether the executor is obliged to step into any controlling roles on behalf of the trust (such as trustee, appointor or guardian), which may be determined by examination of the deed of settlement.
Therefore, at the very least, the executor should ensure they review the financial statements and the deed of settlement (and any amendments) of any trusts that the deceased had involvement with.
How we can help
The Wills, Estate Planning and Structuring team at Moores is one of the largest in Australia and can assist you in preparing your Will to ensure that your assets do not end up somewhere unexpected.
Additionally, you can:
Contact us
Please contact us for more detailed and tailored help.
Subscribe to our email updates and receive our articles directly in your inbox.
Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.