Estate Planning
Creating certainty
Estate planning simply means setting the strategy as to how you want your wealth divided and possibly preserved after your death. Estate planning and Wills are a complex areas of the law and are handled by solicitors or legal representatives.
Your financial advisor can discuss with you how you want your estate to be treated, and advise on how to give effect to your wishes, but drafting and lodgement of Wills is done by your legal representative or a solicitor specialising in estate law. Estate planning covers:
- making a Will to create certainty as to what happens to your remaining assets and who receives them
- the option of drafting an additional Expression of Wishes which complements your Will with additional information such as funeral directions or who will get some specific items of property
- the option of establishing a testimentary trust
- appointing an Executor/s of your estate who makes sure its division is in accordance with your wishes
- the option of appointing and providing for a guardian to care for any children
- creating a Binding Death Benefit Nomination for your superannuation and minimising Death Benefits Tax
- protecting your beneficiaries in the event of divorce or bankruptcy
- guarding against waste and profligacy on the part of beneficiaries
- reducing or avoiding tax on income, capital gains or superannuation on the part of your beneficiaries
- creating an Advance Health Directive.
Due to illness or just reaching the end of their life, 70% of people know they are likely to die in the relatively near future but an astonishing 45% of people do not have a valid Will. This means you have no say in how your income and assets are handled after your death. The Grattan Institute Report: Dying Well (2014)
Many people write their own Will, or make changes to their Will themselves, often to save money. Estate law is extremely complex and it is likely that something put together yourself, will not, due to the way the law works, give effect to your wishes. Your Will can be contested in the courts, at the expense of your estate, and the result can be quite different to what you had in mind.
Superannuation forms a large part of most people’s estate, and as it sits outside your Will, advice is essential to make sure any remaining superannuation and life insurance is treated in accordance with your wishes and does not have unintended consequences for your beneficiaries.
Professional Advice
We can collaborate with your estate lawyer to ensure your Will gives effect to your wishes and minimises any challenges or contesting on the part of beneficiaries.
Regular contact with your legal representative is important as your Will should be reviewed periodically to ensure it keeps pace with any changes in your assets or personal arrangements. Your legal representative can ensure any changes made to your Will are legally binding.
Estate planning does not require a large and valuable estate. It applies equally to large and small estates.
Here are some things to consider:
Testamentary Trusts
Testamentary trusts are a specific type of trust to manage your assets in accordance with your wishes after you have passed away. They can be short, medium or long term. Testamentary Trusts can be used to:
- set up a tax-effective structure for your children or other beneficiaries
- protect your assets in the event of future family breakdown
- create an income stream for a beneficiary while preserving the estate for future generations
- protect your assets from negative financial issues suffered by your children or beneficiaries
- provide care for beneficiaries or children with special needs
Superannuation
When you die, your remaining superannuation may be paid directly to any nominated beneficiary, and is paid out as death benefits, or it forms part of your estate.
As a member of a retail fund you may be able to make a ‘death benefit nomination’ but the Trustee of the fund may have the discretion of whether to pay out to your nominated beneficiaries or not.
Some funds allow you to make a ‘binding death benefit nomination’ which ensures that on your death the residual or remainder of your superannuation bypasses your estate and is paid directly to your nominated beneficiary/ies.
Any death nomination or binding death nomination must be completed in the manner required by the superannuation fund to be valid and legally binding.
Professional advice from your advisor is essential as there have been recent changes to superannuation legislation and you will want to avoid any negative financial consequences for your beneficiaries and recipients of death benefit income streams.
Self-Managed Superannuation Funds (SMSF)
When you die, your remaining superannuation forms part of your estate.
If you have a self-managed superannuation fund (SMSF) you can simply make a ‘binding death benefit nomination’. This is a very important advantage of self-managed funds as you have certainty as to who will receive the balance of your fund. The funds bypass your estate and are paid directly to your beneficiary/ies. A binding death nomination must be completed in the manner required by the superannuation fund to be valid and legally binding.
Recent changes to superannuation legislation in relation to the maximum amount of money someone can have creating tax free earnings has changed.
You will want to avoid any negative financial consequences of bequests for your beneficiaries and recipients of death benefit income streams.
Professional advice is also essential as it is important that the method by which payments should be made is incorporated into the trust deed drafted when your fund is established. It may also be necessary to make arrangements for winding up the fund.
Mutual Wills
These can be useful to ensure your wishes are complied with if you are married or in a de-facto relationship and you both bring assets into the relationship. For example, in a second marriage or relationship, where you both have children, you might create an interest for your spouse or de-facto after your death and you want make sure it is complied with. You simply state in your Will that your Will cannot be altered without the consent of the person for whom you have created the interest.
Advanced Health Directives
An Advanced Health Directive is additional to the appointment of an Enduring Power of Attorney. An Advanced Health Directive means you appoint someone to make decisions on your behalf in all or certain aspects of your health care. This can be very important if you have a serious accident, or develop a life threatening or debilitating health condition and you would like your care managed in a certain way. Your representative is empowered to make decisions that give effect to your wishes and are in your best interest.
Advanced Health Directives are generally developed in consultation with and witnessed by a health care professional.
Enduring Power of Attorney
An EPOA gives certainty to your wishes should you become incapacitated and unable to manage your affairs. Enduring Powers of Attorney create the power in an individual of your choice to act on your behalf and in your best interests in general matters, financial matters and matters of your health while you are alive. You set the time frame for when you want the power to commence and the power ceases on your death. This is an important consideration in the drafting of your Will, as it is the contents of your Will that determine what happens to your assets after your death, not your Attorney.
Business Succession Planning
If you own your own business you will want to consider:
- what happens to it after your death
- how it will run without you
- agreements for buying and selling with partners or shareholders
Your business is likely to form a substantial part of your estate, so plans for its future are an essential part of your Will.
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