What your Will does and Doesn’t Control: Estate and Non-Estate Assets Explained
When a loved one passes away, one of the first questions we receive is: what forms part of the Estate and what happens to any superannuation, life insurance, and jointly owned property? The answer surprises most people as these commonly don’t pass under the Will at all.
One of the most misunderstood aspects of Estate planning is that a person’s Will does not necessarily control all of their wealth. Certain assets pass outside the Estate entirely, regardless of what the Will says. Understanding the distinction between “estate assets” and “non-estate assets” is essential for anyone planning their estate or administering someone else’s.
WHAT FORMS PART OF THE ESTATE?
A deceased Estate is made up of all assets owned individually by the deceased at the date of death. This includes:
- Real estate held solely or as a tenant in common;
- Bank accounts held in the deceased’s sole name;
- Shares, managed funds, and investment portfolios held individually;
- Business interests, motor vehicles, and personal effects;
- Debts owed to the deceased (receivables); and
- Any superannuation or life insurance proceeds paid into the Estate
These assets are subject to the terms of the Will (or the intestacy rules if there is no Will), and creditors of the deceased have first claim over them before any distribution to the beneficiaries can occur.
WHATs not included?
ASSETS SUBJECT TO THE RIGHT OF SURVIVORSHIP
If assets such as real estate, bank accounts or investment accounts are held jointly, they do not form part of the deceased’s Estate. Upon the death of a joint tenant, the deceased’s interest passes automatically to the surviving joint tenant(s) by operation of law, irrespective of any contrary provision in the Will. The Will has no power to override this. The surviving owner simply needs to produce the death certificate to register the transmission.
SUPERANNUATION IS SOMETIMES INCLUDED
Superannuation is not automatically an asset of the Estate as it is held in trust by the superannuation fund trustee and does not vest in the legal personal representative on death unless the trustee exercises a discretion to pay to the Estate, or the fund’s trust deed or a valid binding death benefit nomination directs that outcome.
Where a valid binding death benefit nomination directs payment to a nominated dependant (such as a spouse or child), the fund pays that person directly, bypassing the Estate and the Will entirely. Where there is no valid nomination, the trustee exercises a discretion to determine who receives the benefit.
Importantly, because superannuation generally passes outside the estate, it is not available to satisfy a family provision claim under Part IV of the Administration and Probate Act 1958 (Vic) unless it is paid to the Estate (also known as a Part IV Claim). This has significant implications for both estate planning and for potential claimants, which is why we always recommend that our clients ensure their binding nominations are up to date to ensure that their wishes are carried out.
For more on Part IV claims in Victoria – including what they are, who can make one and the time limits apply, see our full guide.
life insurance IS SOMETIMES INCLUDED
The treatment of life insurance depends on the policy ownership and the nominated beneficiary:
- If the policy names a specific beneficiary, proceeds are paid directly to that person and do not form part of the Estate;
- If the Estate is named as the beneficiary, or no valid nomination exists, proceeds are paid to the Estate and become subject to the Will or intestacy rules;
- Life insurance held within a superannuation fund follows the same rules as superannuation death benefits.
PRACTICAL IMPLICATIONS FOR ESTATE PLANNING
The division between Estate and Non-Estate assets has important consequences for Will-making, family provision exposure, asset protection and tax. Which is why our Wills, Trusts and Estates team at KPA Lawyers address the full scope of your Estate Planning needs by considering whether binding nominations are current, whether joint tenancy arrangements reflect the client’s wishes, and whether superannuation and life insurance beneficiary nominations are consistent with the overall Estate plan.
Get in touch with one of our team to discuss your situation and how one of our experienced lawyers can assist you.
