Episode 02: The assets your Will doesn’t cover and what happens to them when you die

Introduction

Most Australians have a Will that covers their house, their car and their bank accounts — but what about their Bitcoin, their Netflix account, their online share portfolio, or the Instagram account with 50,000 followers that earns advertising revenue? For most people, these assets simply vanish or become inaccessible when they die.

Teresa Catalano: Yeah, it’s quite interesting. It really is a function of what they’ve done with the Will or what they’ve provided for in terms of the succession and legacy accounts for those social media accounts as well.

When we talk about social media, digital assets, they often default to the executor in the absence of any further arrangements having been made in the will. A lot of people are forgetting to include or pay attention to what digital assets are. So we’re having to turn our mind more so to the distinction, I guess, between what financial digital assets are versus the non-financial, more personal type of digital assets are, which I’m sure Adele will talk more about.

What are Digital Assets?

Yes, there’s two different types of digital assets.

There’s financial digital assets, which like your cryptocurrency and then you’ve got your non-financial digital assets, which are more kind of the sentimental parts that don’t actually have any financial value to them. And they can be anywhere from like your photos and videos and stuff like

If a client doesn’t tell their executor where their digital assets are, or how to access them, what happens to those assets?

So it becomes pretty much impossible for you to find. And because unlike your normal financial assets, they don’t really leave a kind of like a paper trail. So, while some financial digital assets may leave that sort of trail, your executor might not have any access to this, that they could become potentially unaware of them even existing.

And yeah, so it just ends up being difficult for the executor to have to locate.

What about social media accounts?

Most social media platforms, they allow you to appoint a trusted person. So I think in Facebook, you can appoint a close friend or family member to gain access to that account. And that allows that person to then memorialize the account or close the account forum. So it’s always really helpful to appoint that type of person to be able to handle those types of social media accounts once you’ve passed away.

That’s why it’s really recommended that you keep a list separately to your will of all the social media and non-financial and financial digital assets and that makes it easier for people to then gain access to them.

There are some like password managing systems which again you can appoint someone to able to access that system in the event of your death and that’s why it’s very helpful to have that kind of system in place and that way you know if anything was to happen to you that they can then that trusted person can then gain access.

Should Passwords and private keys be stored in the Will itself?

No, definitely not. Because once your probate is obtained for your will, that then becomes a public record and you don’t want people to gain access to those types of accounts ⁓ and have third parties be able to, you know. And on that we don’t want lawyers having access to those accounts either. don’t want to keep records of people’s…

Yes, and know, and Adele will attest to this, we’re certainly doing it in our Wills. Absolutely, the executor will need access to certain types of digital assets, such as access to email accounts and banking passwords and portals to do their job, basically. But the more personalized digital assets, which Adele was speaking about, things like digital photos, digital video,access to social media accounts. We don’t have to give those definitively to the executor and people might want their family members to have those. But yes, we can deal with that by virtue of clauses incorporated in your will.

Is there legislation concerning how digital assets pass on death?

Well, the Australian courts have been progressively recognising digital assets as property, but there’s still no clear statutory framework governing how they pass on death. And because the law was written a very, very long time ago, it’s not really kept up to date. But, you know, due to legal framework continuing to evolve, many digital assets involve practical access issues. And it’s very important that these types of digital assets are included in your estate planning?

I think it’s important that people recognize it’s not just about having crypto. We often have clients go, well, I don’t have crypto. I don’t have to deal with digital assets. It’s not my issue. And we try to reiterate that everyone now has digital assets in the form of other things, such as email accounts, digital photos, videos, things stored on their phone, et cetera. And it’s interesting what we’ve seen when we do the estate litigation.

Information is power and a lot of those digital assets carry a lot of information which can be used in favor of or against certain people’s claims against an estate, even for super claims which I know we’ll get to shortly. So I think people need to understand that it’s the access to information piece that carries a lot of weight and importance, more so than sometimes how you give away your assets when you die.

Superannuation

For many Australians, superannuation is their single largest asset — yet it sits completely outside their will. Your carefully drafted estate plan may distribute your house and your investments exactly as you intended, while your super — potentially worth hundreds of thousands or millions of dollars — goes somewhere else entirely based on a form you filled in years ago and forgot about.

How does the system work?

Yeah, well, it’s interesting. And this is probably to recap on one of our earlier podcast episodes, Robert, I’m not sure you might recall which one that was when we discussed a lot about super both in the retail and industry and self-managed superannuation space, which is a little bit different. But I know that we have clients iterate to us all the time in the will, you’ve put a clause in our will about super, that’s how my super is going to pass when I die.

Now that’s absolutely incorrect. Unless there’s something on the superannuation side that supports that. So again just to you know recap what we discussed in that super podcast episode, it is all a function of whether or not you’ve left a valid binding death benefit nomination at the time you’ve died in respect of how that super is to pass and depending on the different funds but generally speaking it’s more so limited to your spouse, children or anyone you’re in an interdependent financial relationship with at the time you die. In the absence of a valid nomination having been left then basically it’s up to the trustee or whoever controls that fund on your death as to whether or not it goes to certain dependence of yours and in whatever proportion they deem fit or to your estate, which is when the will then would come into play if there is a will.

Is reform coming?

Yeah, look, the Law Council of Australia has been sort of mooting a proposal where super death benefits by default would fall to the estate. I think that’s quite a contentious proposal is my view, just to put it out there and I welcome Adele’s thoughts on this too, but I think that often people forget to update their will. They may die without a will, we’re seeing that a lot, where they die in test days without a valid will and then the laws of the relevant state or territory of Australia come into play as to how those assets are succeeded.

Or you know, we’ve got more complex family structures now and you know, people might be estranged from a child or their families and they want to cut someone out. Now, super is one way that we can protect, well at least that particular asset, from being part of an attack to the estate.

How does The Division 296 tax interact with Estate Planning

It’s a very good question and it’s actually flavour of the month at the moment. I’m meeting with a lot of clients that actually fall in this bracket and they are quite concerned.

A lot of these clients would generally have a financial advisor or accountant that they’re working with, and I know we’re very actively with these types of clients to try and see how they can get around this new Div 296 tax. People are very upset about it, is sort of what I’ve seen and experienced. What’s happening as a result of that, people are slowly going to be rolling out.

Assets that are over that amount outside of their super fund, which then causes issues as you can imagine. It’s not in the same tax sort of type environment. It’s not as advantageous for them or their successes, which they, you know, if they have super tax dependence when they die, they can get it in a tax free manner. If it’s outside of super, that changes that. Also, it means then they have to think carefully about how to transition certain assets if the super fund owned shares or real property that could trigger other implications to get those particular assets outside of the super fund into that person’s personal name or a new entity.

And then we’ve got the risk of balancing out is there going to be a potential will contest or attack on this person’s estate when they die. Because if so, and they move that money over that cap, to their personal name, that will just form part of their estate when they die and again, it’s there. It’s part of the bigger pool that’s available to be attacked. And there’s, guess, no certainty afforded to them as to where that money will go. So it’s a big issue. Yeah, it’s causing a lot of concern for those types of clients.

Is there added complexity for Blended families

Yeah, well that’s it. So blended families, I mean, people are often sort of balancing out their estate planning objectives for the current spouse versus children from prior relationships. And how do you do that when you’ve now got probably a lot less in super? It might not go to these people in the most tax advantageous way. If you’re concerned that whether it’s the current partner or a child from a previous relationship might attack your estate.

What does this all mean then from an Estate Planning perspective?

Again, we wouldn’t want these sorts of assets or we would want to keep the pool of assets that passing under your will quite minimal in nature. And this is just going to add layers where I think people that are trying to avoid that new tax on super funds are going to forget because they may just be looking at it from the financial advisory perspective, I’ve got to get this money out of super or these assets out of super, but they’re not going to go that step further and go, okay, well, strategically or do I have to sort of check in with my estate planning practitioner and go, do I take these assets in my personal name or do I need to take it in some other protected structure so it doesn’t form part of my estate when I die and I can leave it to those children or to that spouse and know confidently that that’s what’s…

Yeah, well, I guess we have to work in, as we always have with the clients, accountant, financial advisor, investment advisors. We have to work holistically as a team. It’s going to be slightly different for every client. So, I mean, obviously some people, depending on how much over they are over that capital, what they plan to do with their Superfund moving forward.

They might not be as impacted and they’ll just wear that additional tax. Others will be like, know, way over it. They might have, you know, circa six mil plus in there. Big issue, so they’ll be slowly transitioning out certain assets. They won’t be using the super environment as they once were. And so they might look to discretionary trust structures, for example. They won’t want to put a lot in their personal name because it will increase the tax, if they’re on the highest marginal tax rate already.

And I guess we have to work as a team with our other advisors, as I said, to say, we want to make sure you get the best out of your tax planning and your investment propositions whilst you’re alive. But then from a death perspective, what is it that you’re trying to achieve? And that’s going to be different for different people and different families. And how do we ensure that we protect that and we mitigate risk? We pass it on to your beneficiaries in the most tax effective way.