Estate Planning for Families in Australia | Complete Guide

Q: How do I appoint a guardian for my children in my Will?

In your Will, you can nominate guardians for your children under 18. Name the guardian(s) clearly with full legal names, discuss it with them first to ensure they agree, consider appointing backup guardians, and explain your reasoning if you're excluding the other parent. Note that a court will ultimately decide based on the child's best interests, but your nomination carries significant weight.

Q: What is a testamentary trust and should my family have one?

A testamentary trust is a trust created by your Will that holds assets for beneficiaries rather than giving them outright. It's useful for minor children (holds assets until they're mature enough), protecting assets from beneficiaries' creditors or divorcing spouses, providing for beneficiaries with disabilities without affecting their pension, and tax planning through income splitting. Families with minor children or significant assets often benefit from testamentary trusts.

Q: At what age should children receive their inheritance?

There's no single right answer. The legal age of majority is 18, but many parents prefer to delay full inheritance until 21, 25, or even older. Common approaches include staged distributions (e.g., 1/3 at 21, 1/3 at 25, 1/3 at 30), income only until a certain age then capital, or trustee discretion. Consider your children's maturity and financial responsibility.

Q: How do I provide for a child with a disability in my Will?

If your child receives Disability Support Pension or NDIS, a direct inheritance could affect their benefits. Consider a Special Disability Trust (SDT) which is specifically designed to provide for beneficiaries with severe disabilities without affecting Centrelink payments. Assets in an SDT are exempt from the assets test up to certain limits. Seek specialist legal advice for this situation.

1. Appointing Guardians for Children

If you have children under 18, appointing a guardian is one of the most important decisions in your Will. A guardian will raise your children if both parents pass away.

Critical Point

If you don't appoint a guardian, a court will decide who raises your children. While the court acts in the child's best interests, their decision might not align with your wishes.

How to Choose a Guardian

Consider these factors when selecting someone to raise your children:

Values & Parenting Style

Do they share your views on education, religion, discipline, and lifestyle?

Relationship with Children

Do your children know and feel comfortable with them?

Practical Circumstances

Location, age, health, existing family commitments?

Financial Stability

Can they manage the additional responsibility? (Your estate can help)

Willingness

Have you discussed it with them? Are they willing?

Long-term Suitability

Will they still be suitable in 5, 10, or 15 years?

Guardian Appointment Tips

Talk to them first: Never name someone without asking. It's a huge responsibility.
Name alternates: Appoint backup guardians in case your first choice can't act.
Consider couples jointly: If naming a couple, specify what happens if they separate.
Separate from financial matters: Your guardian doesn't have to manage the inheritance—consider a separate trustee.
Write a letter: Include a personal letter explaining your wishes for your children's upbringing.

Legal Note

Your guardian nomination is a recommendation, not an absolute right. The Family Court ultimately decides based on the child's best interests. However, your wishes carry significant weight and are usually followed unless there are concerns about the guardian's suitability.

2. Blended Family Considerations

Blended families—with step-children, children from previous relationships, or multiple sets of parents—face unique estate planning challenges. Without careful planning, unintended consequences can arise.

Common Issues in Blended Families

Step-children don't automatically inherit

Under intestacy laws, step-children receive nothing. You must specifically name them in your Will.

Spouse vs children conflict

Leaving everything to your spouse may mean your children from a previous relationship receive nothing if your spouse remarries.

Family provision claims

Biological children can challenge your Will if they feel inadequately provided for, even if you intended to exclude them.

Joint assets complications

Jointly owned property passes to the surviving joint tenant, not through your Will.

Strategies for Blended Families

Life Interest/Right to Reside

Give your spouse the right to live in the family home during their lifetime, with the property passing to your children after.

Testamentary Trusts

Hold assets in trust for your spouse's benefit during their lifetime, with children as ultimate beneficiaries.

Mutual Wills Agreement

A binding agreement with your spouse that neither will change their Will without consent. Note: These are legally complex.

Specific Gifts

Leave specific assets (heirlooms, property) directly to biological children rather than through the residuary estate.

Recommendation

Blended family estate planning is complex. While you can create a basic Will online, consider seeking legal advice to ensure your specific situation is properly addressed and to minimise the risk of disputes.

3. Testamentary Trusts Explained

A testamentary trust is a trust created by your Will that comes into existence upon your death. Instead of giving assets directly to beneficiaries, the assets are held in trust and managed by a trustee.

When Are Testamentary Trusts Useful?

Minor Children

Hold assets until children reach an appropriate age (18, 21, 25, etc.)

Asset Protection

Protect inheritance from beneficiaries' creditors, bankruptcy, or divorce

Tax Planning

Distribute income to lower-taxed family members (including minors at adult rates)

Special Needs

Provide for beneficiaries who can't manage money themselves

How Testamentary Trusts Work

1

You create the trust in your Will

Specify the beneficiaries, trustee, and conditions
2

Trust activates upon your death

Assets flow into the trust from your estate
3

Trustee manages the assets

According to the rules you set in the Will
4

Distributions made to beneficiaries

Income and/or capital as specified in trust terms
5

Trust ends (vests)

When conditions are met (e.g., child turns 25)

Tax Benefits of Testamentary Trusts

One significant advantage is that minor beneficiaries of a testamentary trust are taxed at adult rates on trust income, rather than the punitive minor's tax rates that apply to other trusts. This can provide significant tax savings for families.

4. Age-Appropriate Inheritances

Deciding when children should receive their inheritance is a personal decision. The legal age of majority is 18, but many parents prefer to delay full access.

Common Approaches

Age 18 (Outright)

The simplest approach—children receive everything at 18.

Risk: Young adults may not be financially mature.

Age 21, 25, or 30 (Delayed)

Assets held in trust until the specified age.

Benefit: More time for financial maturity.

Staged Distribution

e.g., 1/3 at 21, 1/3 at 25, 1/3 at 30.

Benefit: Gradual access reduces risk of poor decisions.

Income Then Capital

Trust income distributed during younger years, capital at a later age.

Benefit: Provides ongoing support while protecting capital.

Trustee Discretion

Trustee decides when and how much to distribute based on need.

Benefit: Maximum flexibility to respond to circumstances.

Consideration

If delaying inheritance significantly, consider allowing the trustee to make earlier distributions for education, health emergencies, housing deposits, or starting a business.

5. Providing for Special Needs

Planning for a child or dependent with a disability requires careful consideration of how an inheritance might affect government benefits.

The Problem with Direct Inheritance

If your beneficiary receives the Disability Support Pension (DSP) or other means-tested benefits, a direct inheritance could:

Exceed the asset threshold and disqualify them from the pension
Affect their NDIS funding assessment
Reduce their Commonwealth Rent Assistance
Be spent quickly without proper management

Special Disability Trusts (SDT)

A Special Disability Trust is specifically designed to provide for a person with a severe disability while protecting their Centrelink entitlements.

SDT Benefits:

Assets up to approximately $750,000+ are exempt from Centrelink asset test
Trust income doesn't affect the pension income test if used for care/accommodation
Professional management of funds
Protection from exploitation

Important

SDTs have strict eligibility criteria and compliance requirements. The beneficiary must have a "severe disability" as defined by Centrelink. Professional legal and financial advice is essential for this area.

Other Options

Protective Trust: A general discretionary trust with a vulnerable beneficiary clause.
Letter of Wishes: Guidance to the trustee about how to care for the beneficiary.
Gifting to other carers: Leave assets to a sibling or family member who will provide care (with moral expectations).

6. Superannuation & Life Insurance

A critical point many Australians miss: superannuation is NOT automatically covered by your Will. It's held in trust by the super fund and dealt with separately.

Critical Warning

Without a valid Binding Death Benefit Nomination (BDBN), your super fund trustee decides who receives your super—and their decision may not align with your Will.

Binding Death Benefit Nominations (BDBN)

A BDBN directs your super fund to pay your death benefit to specific people. Key points:

Must be valid: Correctly completed and witnessed (usually by two adults who aren't nominees)
May expire: Many BDBNs expire after 3 years—check and renew regularly
Limited recipients: Can only nominate dependants (spouse, children, financial dependants) or your Legal Personal Representative (estate)
Consider tax: Death benefits to adult non-dependent children attract tax; paying to your estate can create flexibility

Life Insurance Considerations

Many Australians have life insurance within their super. This is paid as part of your super death benefit, subject to the same BDBN rules.

Personal life insurance (outside super) can be nominated directly to beneficiaries or your estate. Consider:

Is the coverage amount adequate for your family's needs?
Who are the current nominated beneficiaries?
Should proceeds go to a testamentary trust for children?

7. Planning for Separated Parents

If you're separated or divorced, estate planning becomes more complex, particularly regarding children and former partners.

Key Considerations

Guardianship

If the other parent is alive and has parental responsibility, they typically become the sole guardian regardless of your Will. Only nominate someone else if you have concerns—document your reasons.

Your Ex-Spouse and Your Children's Inheritance

If you leave assets directly to minor children, your ex (as their surviving parent) may control those assets until the children reach 18. A testamentary trust with an independent trustee can address this.

Review Beneficiaries Everywhere

Check and update super BDBNs, life insurance beneficiaries, and any joint accounts. Divorce doesn't automatically remove your ex from these.

New Partners

If you have a new partner, consider how to balance their interests with your children's. De facto partners may have family provision claim rights.

Practical Steps After Separation

Update your Will immediately (don't wait for divorce to finalise)
Review and update all super BDBNs and insurance beneficiaries
Consider a testamentary trust to protect children's inheritance
Update your Powers of Attorney (remove your ex if they were appointed)
Change joint bank accounts and property ownership if applicable

8. Frequently Asked Questions

How do I appoint a guardian for my children in my Will?

Name the guardian(s) clearly with full legal names in your Will, discuss it with them first to ensure they agree, and consider appointing backup guardians. The court ultimately decides based on the child's best interests, but your nomination carries significant weight.

Can I leave assets to my step-children in Australia?

Yes, you can leave assets to step-children in your Will. However, step-children do not automatically inherit under intestacy laws, so you must specifically name them as beneficiaries to ensure they inherit.

What is a testamentary trust and should my family have one?

A testamentary trust holds assets for beneficiaries rather than giving them outright. It's useful for minor children, protecting assets from creditors or divorce, providing for beneficiaries with disabilities, and tax planning. Families with minor children or significant assets often benefit.

At what age should children receive their inheritance?

There's no single right answer. Common approaches include age 18 (simplest), 21-25-30 (delayed), staged distributions, or trustee discretion. Consider your children's maturity and financial responsibility when deciding.

How do I provide for a child with a disability in my Will?

A Special Disability Trust (SDT) can provide for beneficiaries with severe disabilities without affecting Centrelink payments. Assets in an SDT are exempt from the assets test up to certain limits. Seek specialist legal advice for this situation.