Estate planning is a comprehensive process that goes beyond simply having an up-to-date Will. It’s about ensuring your assets are distributed in the most effective way possible, without causing any adverse tax implications for your beneficiaries.

Understanding Estate Planning

Estate planning involves contemplating what will happen to your assets upon your death or if you become mentally incapacitated and unable to manage your affairs. It’s about structuring your estate in a way that ensures it’s distributed according to your wishes, while also protecting your family’s interests in a tax-efficient manner.

As part of your estate plan, you’ll need to consider several key questions:

• Is your Will up-to-date?
• Do you have sufficient life insurance?
• Are there any tax implications of how your assets are distributed?
• Do you have a binding death benefit nomination for your superannuation?
• Is an enduring power of attorney and/or enduring guardian appropriate for you?
• If you’re a business owner, you may also need to consider implementing suitable business succession plans.

The Importance of a Will

A Will is a legal document that outlines who will receive your assets after your death. It can appoint a guardian for any children you have under 18 years of age and also state your wishes regarding your funeral and burial. Your solicitor can assist you in drafting a legal Will, which may involve working with your financial adviser to ensure the appropriate financial structures are included.

Having a Will is crucial. If you die without a Will (also known as ‘dying intestate’), your assets will be distributed according to the laws of the state or territory in which you lived at the time of your death. This may not align with how you would have wanted your assets distributed. Moreover, if you have children under 18 who are left without a parent and you don’t have a valid Will appointing a guardian for them, a guardian will be appointed under the laws of the state or territory in which they live. This may not be the person you would have chosen to raise your children. These reasons make it essential for you to have a valid Will and keep it current.

Assets Governed by a Will

It’s crucial to ensure your assets are owned in the appropriate way as early as possible to avoid being caught by stamp duty or capital gains tax (CGT) if the ownership structure needs to be changed at a later time or transferred to a beneficiary after your death.

Many assets, including personal possessions, property, money in bank accounts, shares, and managed funds become part of a person’s estate upon their death and are governed by their Will. Jointly owned assets held as tenants in common can also be dealt with under your Will, as your share of the asset becomes part of your estate.

Assets Not Governed by a Will

Not all the assets you own or control can be dealt with under your Will. These include the following three areas:

Joint Tenancy: Jointly owned assets or property can generally be held as joint tenants. On your death, the surviving joint tenant automatically acquires ownership of your share of the asset. The asset won’t form part of your estate and can’t be dealt with under your Will.

Assets Owned by a Company or Held in Trust: If you own assets via a company or trust, your estate plan needs to address how that control will be passed on to your beneficiaries when you die.

Superannuation Death Benefits: Many people wrongly assume that their superannuation will pass to their beneficiaries according to their Will. In fact, this will only happen if your legal personal representative (on behalf of your estate) is the recipient of your superannuation death benefit.

Enduring Power of Attorney

If you are worried that you will be unable to manage your own affairs, you might consider appointing an enduring Power of Attorney (PoA) and enduring Guardian. Granting someone a PoA means they can legally act on your behalf in relation to financial matters. Unlike a general PoA, an enduring PoA continues to apply if you lose mental capacity, meaning you can appoint someone you trust to look after your financial affairs if you’re no longer able to do so.

Funeral Expenses

Setting aside funds to pay funeral expenses provides peace of mind that money is available, removing the burden from your loved ones. There are several ways of funding funeral expenses, including funeral bonds and pre-paid funerals.

Tax-Effective Estate Planning

The disposal of assets in accordance with your Will may have tax consequences, including capital gains tax (CGT), that you should consider when drafting your Will and creating your estate plan. There are many strategies you can use to help make your estate plan as tax-effective as possible for your dependants and beneficiaries.

Conclusion

Estate planning is a comprehensive process that requires careful consideration and planning. It’s not just about having a Will, but also about ensuring that your assets are distributed in the most effective manner possible, without causing any adverse tax implications for your beneficiaries. By considering all aspects of your estate and working with a financial adviser, you can ensure that your estate plan is as effective and efficient as possible.