Estate planning is an important aspect of managing your affairs when you die or become incapacitated. The subject matter is often difficult to discuss or raise with family members, but it is something all of us need to consider, especially if you have a property portfolio, run a business or have a complex estate.
An estate plan details how and when your assets will be distributed and who will be responsible for managing your affairs when you die or become incapacitated. These details need to be documented and, as they include legal documents, you need to be 18 years of age to prepare an estate plan.
Estate plans should be reviewed and updated regularly; especially when there has been a major change in your circumstances or life (such as a change of partner or financial situation).
- Estate plans
An estate plan sets out the details of how you want your assets to be distributed and who will be responsible for managing your affairs. At the time of your passing your assets will consist of money, investments, property plus any other assets in your name, less any liabilities outstanding. You will want these to go to the people that have been important to you in your life.
To make sure things happen the way you want them to, an important aspect of your estate plan is to document how you want your wishes to be carried out when you die or unable to make your own decisions. These documents include:
- a will
- a testamentary trust
- superannuation binding nominations
- funeral arrangements
An estate plan also includes documenting how you want to be cared for if you are no longer able to make your own decisions. This documentation includes:
- a power of attorney
- a power of guardianship (which gives someone the right to make decisions about your medical care and where you will live)
- Wills
A Will is an important legal declaration that outlines what you want to happen to your assets when you die. The rules relating to a Will can vary by State and Territory. A Will is part, but not all of your estate plan and may contain details such as:
- who you want to receive your assets
- who you want to receive specific personal and heirloom items
- any religious or cultural arrangements for your funeral
- who you want as a legal guardian for any children under 18 years
- who you choose to be your executor when you pass away
- how much money you would like to donate to charities
Your Will would normally name someone who will be responsible for carrying out your wishes after you died; called an ‘Executor’. This should be someone who you trust (such as a friend or family member) or can be an appointed professional (such as a solicitor, or a trustee company).
Wills can be prepared by a solicitor, a Public Trustee or via an online will-kit. If you decide to use a will-kit, it would be recommended that you get a solicitor or a Public Trustee to check it.
Unfortunately, too many people die without a Will, or have a Will that is out of date and may not reflect their current needs. If you die without a Will, lawyers appointed by your local State or Territory will make decisions on your behalf on who will get your assets; which may not be what you wanted.
Update your Will
It is important that you keep your Will up-to-date, especially if your circumstances have changed; for example:
- Getting married
- A divorce or separation
- Additional children or grand-children
- A significant increase in your assets
- Loss of a spouse, partner or someone named in your Will
If you make a new Will you need to make it very clear that it replaces any previous Wills. It is also important that your current Will is stored in a safe place and that someone other than yourself know where to find it.
Items not included in a Will
Wills only include assets that are in your personal name, however there may be other assets that need to be considered; such as:
Excluded beneficiaries
Even though it is your money, you may not be able to exclude beneficiaries from your estate if they consider they should be entitled to receive a benefit. For example, an estranged child may still have a claim to some form of inheritance. Leaving them out completely out of your Will may be risky as they may make a claim for a higher amount.
Beneficiaries receiving government benefits
If you have a beneficiary that receives a government benefit, you may want to consider the impact that your inheritance may have on them. For example, a disabled child receiving government support may lose that benefit if they receive an inheritance, however there may be things you could do to pass on your assets that could limit this impact, such as a special disability trust.
Companies and trusts
If you are looking at passing on control of a company or trust you’re involved in, this would not necessarily be included in your Will. For example, you may hold a position as company officer or a trustee, so additional documentation may be required to ensure that the control of these entities and interests are passed on according to your wishes.
Joint tenancy assets
Assets from a joint tenancy, when more two or more people own a property together, normally pass automatically to the other owner/s when you die. Therefore the property is not included in the Will.
For example, two relatives owning a property as tenants in common will be deemed to own 50% each; which may not be the split that you want to have, so this will need to be addressed in your Will.
- A testamentary trust
Trusts can be established for personal or business purposes. Trusts involve a trustee (an individual or an organisation) that is given the responsibility to hold assets to be distributed to a ‘beneficiary’ (the person who is to receive the assets). A testamentary trust is a discretionary trust. In estate planning a testamentary trust is created under Will with the objective of a trustee (often the Executor of the Will) holding and managing the assets in your estate that are to be distributed after your death to the beneficiaries outlined in your Will. A testamentary trust does not come into existence until you have died.
The way a Testamentary Trusts works is that the assets of your estate would not be not be transferred directly to the beneficiaries, but via a trustee. The trustee would look after your assets until they can be distributed to a beneficiary.
A testamentary trust outlines the trustee (usually named in a Will) and allows them to decide which and how the nominated beneficiaries in a Will receive distributions after you die.
Under a testamentary trust, when you die the assets of your estate would be distributed to the trustee of the testamentary trust that holds the assets for your estate and on behalf of the beneficiaries nominated in your Will.
They are designed to provide flexibility and provide tax-effective distribution of assets from an estate. Examples include when the beneficiary:
- reaches a certain age
- has diminished mental capacity
- would not handle their inheritance in a responsible manner
- achieves a certain goal or ‘mile-stone’ (such as a marriage or qualification)
Testamentary trusts may also be considered in situations such as:
- a split as part of a divorce settlement
- part of bankruptcy proceedings
The advantages of a Testamentary Trusts include:
Control: distribution of income and assets is flexible, with assets held in the testamentary trust controlled by the trustee rather than by individual beneficiaries.
Asset Protection: insulating assets from potential third-party claims that have been made against individual beneficiaries or that are in disputed family law matters.
- Superannuation nominations
Superannuation is not automatically part of an estate, so distribution of super following your death can be complex. Laws in Australia stipulate that members of a super fund can nominate who will receive their benefits when they die. An area of complexity is that death benefit nominations can also vary across superannuation funds, depending on the rules of the fund. So if you do not have a valid death benefit nomination at the time of your death, your super fund trustee will use their discretion to decide who will receive your death benefits; which may not be the way you wanted them distributed. It is therefore in your interest to nominate how you want your death benefits to be distributed.
Types of death benefit nominations you can make to the trustee of your super fund, include:
- A binding death benefit nomination: Where you provide a written direction on how you want some or all of your superannuation death benefits to be distributed. If valid, the trustee is bound by law to follow this direction.
- Reversionary beneficiary: If you receive an income stream you can nominate the beneficiary you want these to automatically revert to on your death. If valid, the trustee is bound by law to follow your instructions.
- Non-binding death benefit nomination: Where you provide a written guide on how you want your superannuation death benefits to be distributed. However the trustee retains the right to distribute these at their discretion.
- Non-lapsing binding death benefit nomination: Where you provide a written direction on how you want your superannuation death benefits to be distributed, which remain in place forever unless you cancel this nomination or replace it with a new nomination.
An important part of an estate plan is to have the right documentation in-place to provide authority to someone to make decisions on your behalf, while you are still alive but not capable of making these decisions yourself. Some of the legal documents you should consider include:
Power of Attorney and Guardianship
A Power of Attorney and a Guardianship are legal documents that gives a person or a trustee organisation the legal authority to act for you to manage your assets and make financial and legal decisions on your behalf.
It is good to have these documents in place in case something happens to you and you suffer as temporary or permanent loss of capacity and lude include:
- Enduring Power of Attorney: Which is a legal document that appoints a person to manage your financial and legal decisions on your behalf and continues even if you lose the ability to make decisions yourself.
- General Power of Attorney: Which is a legal document that appoints a person to manage financial and legal decisions on your behalf only while you have the ability to make your own yourself
- Enduring Guardian: Which is a legal document that appoints a person to make decisions about your health and lifestyle (including where you live) if you lose the ability to these decisions yourself.
If you have a partner and a family, you may also like to consult with them, when planning your estate.
Many of the aspects involved in Estate Planning can be quite complex and may be disastrous if you get it wrong. It is therefore important to consider getting professional advice when organising these matters, such as form a lawyer, tax consultant or financial planner.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email info@cnaccountants.com.au or phone 02 9684 2011 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
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