Estate planning is an important process to protect your legacy and ensure the execution of your wishes after you die. An estate plan involves more than signing a Will and storing it in a ‘safe place’. It requires a holistic approach, considering your family, your assets, your circumstances and what your final wishes will be. A lawyer can help document these wishes to ensure they are legally enforceable and can be carried out when you die.
This article considers what an effective estate plan may entail and some of the steps involved in preparing an estate plan. The information is general only and we recommend obtaining professional advice specific to your circumstances when planning your estate.
The Benefits of Estate Planning
An estate plan can:
- Appoint a trusted person or persons to manage your affairs (attorney/guardian) if you are incapacitated, and a legal personal representative (executor/trustee) to administer your estate (and any associated trusts) after you die.
- Nominate your intended beneficiaries with certainty or provide for a class of beneficiaries to ensure that your assets pass only to those you intend to benefit.
- Minimise stress and expense by reducing uncertainty and the potential for family provision claims.
- Provide flexibility in distributing assets in anticipation of the present and future needs of beneficiaries.
- Maximise the value of your estate through effective tax planning to minimise capital gains, and income tax payable by beneficiaries on their inheritance.
- If relevant, provide for effective business succession or the winding up of a business.
Steps in Estate Planning
Your family
Every family is different and there is no one-fit solution for all. You should start with:
- An overview of your family circumstances.
- A list of all family members, whether or not you would like them to benefit from your estate.
Acknowledging where there is conflict between family members and identifying any eligible persons who might claim on your estate can assist in devising strategies to reduce the potential for future claims.
Blended families are common and require special attention as there may be competing interests between:
- Past and present partners
- Biological children
- Step-children
Choosing Your Executor and Trustee
The executor and trustee will be your personal legal representative and should be chosen with care.
- For simple estates, a spouse or child/children (or combination) are often chosen to oversee the administration and finalisation of the estate.
- For more complex estates, with business interests or which will have ongoing trusts, it may be preferable to appoint a professional with expertise in this area.
- If there is conflict within the family a ‘neutral’ executor may be more appropriate to ensure that the role is carried out with impartiality.
Powers of attorney and guardianship
Each jurisdiction in Australia allows for the appointment of:
- An attorney
- A guardian
- And/or a decision-maker
to manage your financial, legal and/or personal affairs for a defined or ongoing period, and to make certain health-related decisions if you are incapacitated.
These documents provide flexibility by allowing you to:
- Choose the type of functions to be carried out,
- Define the duration for which the authority is given.
These form an important part of your overall estate plan by ensuring the ongoing management of your affairs by a trusted person if you are incapacitated. A lawyer can explain the relevant documents in your circumstances and jurisdiction.
Your assets
A detailed list of assets and liabilities will assist in:
- Determining the overall value of the estate
- Deciding how and when assets should be distributed
- Structuring the Will appropriately
- Considering whether a testamentary trust would be beneficial (see below)
You will need a precise description of:
- The assets
- Their location
- Whether they are held individually or jointly
- Their value
If you are including specific gifts, such as items of sentimental value, antiques, or artworks, these should be clearly identifiable and described in the Will.
Remember, your assets may change over time and this needs to be factored into your estate plan. A gift of a specific asset of considerable value which is later disposed of may fail and cause an unintentionally unequal distribution amongst beneficiaries.
Using a Testamentary Trust
In some cases, it might be beneficial for a Will to establish a testamentary discretionary trust. This is a trust that comes into effect after the will-maker dies. Administration of the trust is carried out by a trustee pre-appointed by the will-maker. The trustee determines how and when estate assets are managed and distributed.
If managed properly, the flexibility of a discretionary trust can allow beneficiaries to access the most advantageous taxation treatment concerning their inheritance and can protect at-risk or vulnerable beneficiaries from claims by creditors or ex-partners.
Your superannuation
Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).
Most funds allow members to nominate their intended beneficiaries through a BDBN. This process forms an important part of estate planning – without a valid BDBN, the beneficiaries may be decided by the trustee in accordance with the terms of the trust deed and the relevant legislation.
Business succession
If you have business interests, you will need to think about how you would like these dealt with after you die. You may want your interests passed down or the business to be wound up. Some partnerships will have buy-sell insurance in place. This is a policy allowing a surviving partner to acquire the deceased partner’s share so the business can continue.
Final Thoughts on Estate Planning
Effective estate planning takes time and careful contemplation. Your estate plan will usually comprise various documents to ensure the effective management and finalisation of your affairs so that your life’s efforts reward those you intend to benefit. The process often involves collaborating with legal and financial professionals to address various components of your estate plan.
If you or someone you know wants more information or needs help or advice, please call (02) 4987 3344 or email [email protected].