Estate Planning – so much more than just a Will


When we think of estate planning a Will is often the first thing that comes to mind. But good estate planning involves considerably more, giving you and your family holistic protection at every life stage. Let’s see what’s involved.

If you have overlooked estate planning in the belief that it’s only relevant to the rich and wealthy, think again. If you have a spouse or children; if you own assets or investments; or if you own a business, estate planning plays a critical role in your wealth creation and protection.

That’s because estate planning addresses how you would like your estate managed while you are alive, if for example, you are incapacitated by illness, as well as how you would like your affairs managed when you die.

In short, we all need an estate plan, and to understand why it involves considerably more than a Will, let’s first look at what is meant by your ‘estate’.

Understand your assets

Your Will forms the cornerstone of your estate plans, and it really is essential to have a current, valid Will in place to be sure your assets will be distributed in line with your wishes. However, in order to draft a watertight Will, it’s worth knowing exactly what assets you own, and who you would like give various assets to in the event if you die.

What many people don’t realise is that from an estate planning perspective, there are two main types of assets: ‘estate assets’ and ‘non-estate assets’.

An estate asset is an asset held in your personal name such as vehicles, bank accounts and even properties.

Non-estate assets are those that cannot be dealt with through your Will. These include property owned as joint tenants, investments owned by your self-managed super fund, superannuation held in a professionally managed fund, and assets owned by a family discretionary trust.

Get your super sorted

Along with property, superannuation also requires special attention for estate planning. That’s because super is not included in your Will. The trustee of your super fund has the discretion to distribute your super as they see fit.

The only way to ensure your super passes to the beneficiary of your choosing is to complete a ‘binding death benefit nomination’. This involves completing some paperwork stating exactly who you’d like to inherit your super. Strict compliance rules must be followed to ensure a death benefit nomination is valid, so it is a step where professional advice matters.

I can help you set up a death benefit nomination, or review any current nomination you may have in place to ensure it remains appropriate.

Is your life cover up to date?

In the same way that it’s necessary to consider the fate of your super when getting your estate in order, it’s also critical to look at your life insurance policy.

In particular, think about whether the policy is still relevant. If you’ve named a specific beneficiary on the policy, your life insurer must pay them directly. As such, this money will not form part of your estate. Speak to me before making any adjustments to your life insurance policy to be confident you are making the right decisions.

Be mindful of the impact of tax

It’s easy to overlook the impact of tax in your estate plans, but this is a complex area and definitely one where professional advice is a must.

The disposal of assets in line with your Will can trigger tax consequences including capital gains tax (CGT). For instance, bequeathing your super to a non-dependent beneficiary can leave the beneficiary facing a considerable tax bill.

The good news is that a number of strategies are available to make your estate plan as tax-effective as possible for your dependents and other beneficiaries. Using a discretionary trust for instance, is one option to help minimise the tax a beneficiary pays on receipt of an inheritance. I can explain the strategies best-suited to your circumstances so that your beneficiaries – rather than the tax man, gain the maximum benefit from your estate.

While it can be confronting to prepare for our own death, not planning for it can be far worse. Dying intestate (without a Will) can trigger hardship for your loved ones including legal action instigated by disgruntled family members or an ex-spouse.
However, quality estate plans can also play a role while we are still very much alive.

Power of Attorney

Power of attorney is a document by which a person or company gives authority to another (highly trusted) person to act on their behalf in certain circumstances. The person giving the power is generally known as the ‘principal’, and the person to whom the power is given is referred to as the ‘attorney’.


 

Powers of attorney are either:

1
General

General – valid while the principal retains mental capacity and may allow all actions the principal could legally take or be limited to specific actions (for instance, deal with shares only). It could also be limited to a specific timeframe (for example, while the principal is overseas)

2
Enduring

Enduring – remains valid even after the principal loses mental capacity. These powers are generally best to cover all actions, but restrictions could be written into the document


Let’s say for example that you are planning an extensive round-the-world trip, and you want someone to look after your financial affairs while you’re away. It’s possible to appoint power of attorney to someone you trust to take care of your money until you return.

Power of attorney can also be used if you are rendered incapacitated for any reason. If you cannot sign documents your assets cannot be used to help you. Power of attorney can be a financial lifeline in these circumstances, allowing a trusted (and preferably financially savvy) person to operate your bank account and complete other financial transactions on your behalf.

Clearly, powers of attorney are a way of planning and preparing for the future – both your own and your family’s. I can explain more on how power of attorney can play a key role in your circumstances.

An Enduring Guardian – choose your lifestyle

Power of attorney doesn’t give your attorney the right to make decisions about your lifestyle, medical treatment or welfare. These decisions are covered by Enduring Guardianship, allowing you to legally appoint a decision-maker of your choice to decide on things like advanced care treatment, should you lose the capacity to make them yourself.

By appointing an Enduring Guardian while you’re still alive, another person can make decisions regarding your health and where you might live. It only takes effect if you lose the capacity to make your own decisions, and it doesn’t include authority to handle your financial affairs. It’s definitely something worth thinking about especially as we age.


Is a testamentary trust right for you?

A testamentary trust is set out in your Will but only comes into effect when you pass away. Testamentary trusts are usually set up to protect assets, and there can be a variety of circumstances when they can be extremely useful. For instance:

You may have beneficiaries, who are minors (under 18-21 years old)

Your beneficiaries have diminished mental capacity

You do not trust the beneficiary to use their inheritance wisely

You don’t want family assets split as part of a divorce settlement, or

You do not want family assets to become part of bankruptcy proceedings.

Under a testamentary trust, the trustee you appoint in your Will has the discretion to take care of the assets for the benefit of the beneficiaries until the trust expires. This expiry date may be specific – such as when a minor reaches a certain age, or it could be when a beneficiary achieves a certain milestone like getting married or completing their education.

Speak to a professional

With so much more to estate plans than just a Will, it is worth thinking about any gaps in your plans that could leave you or your family vulnerable. It’s an area that definitely deserves consideration, and I can explain what would be involved in designing a holistic estate plan for your needs. We partner with a select group of estate planning specialists, and together we can help you get your estate in order.

 

Talk to your local financial adviser today

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