Estate Planning Guide
When it comes to planning the exciting things in life, such as buying a house, having kids, or getting married, estate planning isn’t something that immediately springs to mind. Although it may be a sombre topic, it’s certainly an important one many of us avoid. You may not know what estate planning entails, or think that it’s simply a will, but it’s a lot more detailed and there are several aspects you need to consider.
Here is Inovayt’s estate planning guide with our top ten things to keep in mind when you’re completing your estate planning.
It’s important to consider your family structure, as there’s no one-size-fits-all when it comes to family! Map out all members of your family and decide whether you would like them to benefit from your estate or not. Consider any conflict present between family members and identify anyone eligible who might make a claim on your estate. This will help you plan and put strategies in place where necessary.
Family conflict can get confusing, but it is common. These may need special attention – especially where there are many partners and ex-partners, as well as children and stepchildren. Inovayt Financial Advisor Melbourne Luke Mase says, “It’s important to consider how this is going to be left to the beneficiaries. For example, if the benefactors have young kids under 18, make sure the plan is structured so they will get the greatest benefit from a tax point of view, and make sure the money is protected. If the benefactors have adult children, make sure the money is protected if there is a marriage breakdown and both parties were to inherit assets.”
Choosing your executor and trustee
Choosing your executor and a trustee is one of the most important things when it comes to estate planning, as they will be the ones who will manage your estate when you pass. It doesn’t have to be a family member, but can be a friend, lawyer, other working professional, or a trustee company. Keep in mind when choosing an executor that you’re choosing someone reliable, organised and vigilant as there are a few tasks that will usually need completing, including applying for the death certificate and grant of probate, finding and contacting beneficiaries which include anyone living overseas or interstate, protecting the person’s assets, providing death notices where required and more. If there is conflict in the family, it may be wise to choose a neutral party to undertake the role of the executor.
Power of attorney
When planning your estate, another aspect to consider is choosing a Power of Attorney (POA). A Power of Attorney is a legal document that appoints an attorney to deal with property and financial matters on your behalf. This might be, for example, if you are travelling overseas for an extended period and need someone to sign documents on your behalf. A POA should be assigned to someone you trust to make important decisions. Luke stresses the importance of having a POA document drawn up, saying, “I’ve heard lots of horror stories about people not having adequate documentation in place when decisions need to be made when someone loses capacity. They have to get court orders brought in which takes time. Having a POA alleviates some of this stress and provides more certainty.”
Enduring guardianship and advanced care directives
Enduring guardianship is something you can set up where you elect a person to take care of your health and medical conditions if you become incapable of doing so yourself. These might include arranging in-patient stays in a care facility, organising services for you, and giving consent to medical procedures. Enduring Guardianship comes into effect only if you lose capacity. Because it’s such a big responsibility, an enduring guardian should be carefully thought out and discussed before making any decisions. It’s common for a lot of people to complement a POA document with an enduring guardian document so that the same person is chosen for both medical and financial affairs.
An advanced health care directive guides your family members and enduring guardian as to what medical decisions you would like them to make. This includes things like refusing treatment and ‘Do Not Resuscitate’ orders.
Planning and writing a list of your assets – both individual and joint – is another consideration for estate planning. This list of assets and liabilities will help determine the overall value of your estate, as well as how and when the assets should be distributed, the appropriate structure of the will and whether a testamentary trust would be beneficial. All assets should be considered – not just the larger things like property, cars, and boats. Anything you want to be passed on to beneficiaries that hold sentimental value, like antiques or artwork, needs to be identified. Luke mentions, “For joint assets, if one person passes, the asset will revert to the other person; it won’t go through the estate. If it’s a tenant in a common asset, it will be left to the estate to deal with.”
A testamentary trust is only established once someone has passed away. It manages all assets of the deceased person, including how they are shared with the beneficiaries. Investopedia states:
“A testamentary trust can be established so that the deceased’s assets are paid to the beneficiaries only when certain conditions have been met. For example, the trust may state that the assets may be accessed by a child of the deceased for educational expenses until the child reaches the age of 25, at which time the balance will be paid out.”
It also keeps assets safe from claims by unwanted people such as ex-partners. Luke adds, “For adult children who are married, the parent might say they want the money held in a testamentary trust for their child. That way if there’s a marriage breakdown, they’re shielded, and the money is shielded meaning it isn’t part of the marital assets, so it’s not split.”
Your superannuation isn’t automatically part of your estate assets. The Federal Court of Australia says: “Superannuation is not an asset of the estate and a trustee is not bound to follow the directions of a will. Even if superannuation is specifically mentioned in a will, it does not make it an asset subject to the terms of the will.”
Most superannuation funds let you nominate your beneficiaries in the event something was to happen to you.
If you run your own business, this will need to be taken into consideration when it comes to estate planning. What’s going to happen to the business if you’re no longer around? Will it be passed onto a family member, or do you have a business partner who will take over? These are some things that need to be planned for, including if you would like the business to close in the event of death if you are a sole trader.
Beneficiaries receiving government benefits
Something to take into consideration is whether the beneficiaries of your estate are currently receiving any support or government payments. If, for example, one of your beneficiaries is receiving disability payments, it’s important to consider what would happen if they were to receive a large lump sum payment – would they lose these benefit payments? If yes, would they be better off in the long run? It’s important to speak with the beneficiary and seek professional advice before making this decision.
It is also important to remember that even though it is your money, you simply can’t exclude beneficiaries from your estate if they may be entitled to something. This includes any estranged children who may have a claim on some form of inheritance. Completely leaving them out of the estate can have negative consequences in the long run and complicate the process.
While estate planning certainly isn’t anyone’s favourite topic to talk about, it’s an important one. Having a plan in place if something were to happen is a crucial part of future planning. If you’ve reached some larger milestones, such as buying property or having a baby, it’s time to look into planning your estate. To get the conversation started, reach out to an Inovayt financial advisor today.