Monday, February 14, 2011

An estate planning tip

Following last week's post, an adviser contacted me to relay a critical issue to keep in mind whenever looking to move an asset (such as a family home) into the name of a spouse.

Broadly the chain of events was as follows:

1. An at-risk spouse moved the family home into her husband’s name paying a substantial stamp duty bill.

2. The husband subsequently died with a very simple 'I love you' will.

3. Under this will, all of the husband’s wealth passed back to the wife.

4. The wife then had to pay another round of stamp duty to move the asset into a family trust.

5. Aside from the double stamp duty bill (and the second bill was actually significantly larger than the first as duty was payable on 100% of the asset with no concessions available), the second transfer to the family trust has also meant that the house will probably be subject to capital gains tax on any subsequent disposal and the 4-year clawback period under the bankruptcy rules starts again from the date of the second transfer.

6. Both of these adverse outcomes could have been avoided if the husband had ensured testamentary discretionary trusts were established under his will.

Until next week.