Local people. Local expertise. Industry leaders.
07) 4944 2000
Facebook
LinkedIn
MacAmiet Logo White
  • Home
  • About
    • Profile
    • Privacy and Credit Reporting Policy
    • History
    • Career Opportunities
  • People
    • Directors
      • Gene Paterson
      • Pat Carroll
      • John Formosa
      • Darren Sekac
      • Stuart Naylor
      • Andrew Telford
      • Samantha Sticklan
      • Paul Formosa
      • Caitlin Roberts
    • Associates and Solicitors
      • Steven Hayles
      • Danielle Fitzgerald
      • Brigid Paterson
      • Rebecca Casanovas
      • Dyane Norton
      • Jessica Kay
      • Nelson Turner
    • Notary Public
      • John Formosa
    • Migration Agent
      • Paul Formosa
  • Services
    • Legal Services (A-C)
      • Banking Law
      • Business Law
      • Civil Litigation
      • Conveyancing
      • Criminal Law
    • Legal Services (D-O)
      • Deceased Estates
      • Family Law
        • Getting Started
        • Start Now Online
        • Frequently asked questions
        • Domestic Violence
        • Local Services Guide
        • Meet our Family Lawyers
        • Family Law News Articles
      • Family Law Online
      • Immigration & Australian Visas
      • Notary Public
    • Legal Services (P-Z)
      • Personal Injuries
        • Compensation Claims
        • Motor Vehicle Accident
        • Workers Compensation
      • Planning Law
      • Powers of Attorney & Advance Health Directive
      • Property Law
      • Wills and Estates Planning
      • Workplace Law
  • Charitable Foundation
  • News
    • Latest News
    • Subscribe
  • Contact
    • Mackay
    • Proserpine
    • Whitsunday
    • Solicitor Gold Coast
  • Payments
    • Pay Now
    • Payment & Refunds

Paying Estate Debts: Hands-Off the Life Insurance Policy and Superannuation!

October 19, 2015Sinéad ButlerSinéad Butler

Paying debts and liabilities of an estate must be done by the deceased’s personal representative upon that person’s death.  Unfortunately, this may mean using potentially all of the estate assets to meet these payments – that is, except for the life insurance policy or superannuation fund!

Happily for beneficiaries, the legislature has protected life insurance policies and superannuation funds from being used to pay debts and liabilities of a deceased estate.  Consequently, the proceeds of the policy or fund are to be carried out according to the terms agreed upon and made in accordance with a nomination under the policy, or as directed.

The same rule applies if the estate is insolvent.  Under Section 116 of the Bankruptcy Act 1966 (Cth), life policies and super funds are not available to creditors.

Life Insurance Protections and Exceptions

Sections 204 and 205 of the Life Insurance Act 1995 (Cth) protects life policies from being applied or made available to pay the debts of a deceased estate.

However, this protection does not extend against funeral and testamentary expenses, which can be paid out of policy proceeds.  In this regard, to avoid possible litigation, will-drafters should give careful consideration to the complex questions of apportionment required for the payment of debts, and funeral and testamentary expenses under the Will.

The only way life insurance policies can be used to pay estate debts is if the policy holder expressly directs so, either by:

  1. Entering into a contract that expressly provides for the money to be applied in the payment of the debts; or
  2. The person has charged the money with the payment of the debts; or
  3. Making an express testamentary direction in their will that the policy money is to be applied for payment of the debts.

Indeed, using proceeds of a life policy to pay estate debts does have some definite advantages, namely:

  • Proceeds of life policies are not likely to incur Capital Gains Tax (CGT); and
  • Making the life policy available to pay debts may protect other estate assets from being sold, which would incur CGT.

Making the decision to use the life policy to pay estate debts will require a holistic consideration of the estate assets and liabilities.  Particularly, special care must be taken when drafting directions in accordance with the legislation. Inaccurate wording may have unintended effects upon the estate and incur unwanted tax liabilities!

Superannuation Protections

Section 143 of the Superannuation Act 1922 (Cth) protects superannuation entitlements from being applied or made available for payment of estate debts.

Notably, this protection cannot be removed like the life insurance policy.

Final Considerations

Persons who make nominations under their life policy or super fund should ensure the nomination is kept up-to-date and valid.

If you require further information on any matters contained in this article, including assistance with estate planning, we invite you to contact our office.

 

 

 

Tags: Estate Planning, Estates
Sinéad Butler
https://www.macamiet.com.au/firm/sinead-butler
Sinéad Butler was admitted as a Solicitor in the Supreme Court at Brisbane in 2014. She commenced employment with the firm in February 2015.
Previous post Macrossan & Amiet Charitable Foundation Update – Distribution 2015 Next post Change is here ~ Personal Property Securities Act

Related Articles

Pitfalls of DIY Legal Will Kits

February 17, 2020Darren Sekac

Deceased Estates: What is Probate?

September 10, 2019Caitlin Roberts

When is it Reasonable to make Inadequate Provision for a Child or Spouse?

November 15, 2013Danielle Fitzgerald

News

  • Applicant Receives Deceased’s Property on Basis of a Verbal Promise Fulfilled
  • Medical Negligence Claims
  • Social Media Defamation
  • Driving with an Interstate Driver Licence or Motor Vehicle
  • New Enduring Power of Attorney and Advance Health Directive Forms
  • Insurers Liable for Business Interruption Caused by COVID-19
  • Child Support: Applying for a Change of Assessment

Mackay | (07) 4944 2000

mac@macamiet.com.au
55 Gordon Street                                 Mackay QLD 4740

Whitsunday | (07) 4948 4500

whitsundays@macamiet.com.au
Whitsunday Business Centre 230 Shute Harbour Road Cannonvale QLD 4802

Proserpine | (07) 4964 6900

proserpine@macamiet.com.au
15 Chapman Street                         Proserpine QLD 4800

Gold Coast | 0419 714 015

dsekac@macamiet.com.au

 

Available by appointment & home visits available

HomeAboutPeopleServicesCharitable FoundationNewsContactPayments
© 2020 Macrossan & Amiet. All rights reserved.
Designed and Hosted by Extend Digital