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 effective estate plan provides several key advantages for you and your loved ones:
- Appoint a trusted person or persons to manage your affairs (attorney/guardian) if you are incapacitated.
- Appoint a legal personal representative (executor/trustee) to administer your estate after you die.
- Nominate your intended beneficiaries with certainty to ensure 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.
- Provide for effective business succession or the winding up of a business if relevant.
Estate Planning Roles Compared
| Role | Primary Responsibility |
|---|---|
| Executor | Administers the estate and carries out the Will. |
| Attorney | Manages financial and legal affairs during your life. |
| Guardian | Makes health and lifestyle decisions if you are incapacitated. |
Steps in Estate Planning
Your Family and Circumstances
Every family is different and there is no one-fit solution for all. You should start with an overview of your family circumstances. Create a list of all family members, whether or not you would like them to benefit from your estate.
Acknowledging conflict between family members can assist in devising strategies to reduce future claims. Identifying eligible persons who might claim on your estate is vital. Blended families require special attention as there may be competing interests between past and present partners, biological children, and 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 is often chosen to oversee the administration. For more complex estates with business interests or ongoing trusts, you may prefer to appoint a professional with expertise.
If there is conflict within the family, a ‘neutral’ executor may be more appropriate. This ensures 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. These individuals manage your financial, legal and personal affairs for a defined period. They also make certain health-related decisions if you are incapacitated.
These documents provide flexibility. They allow you to choose the type of functions to be carried out and define the duration of authority. They form an important part of your overall estate plan by ensuring management by a trusted person. A lawyer can explain the relevant documents for your jurisdiction.
Your Assets and Liabilities
A detailed list of assets and liabilities will assist in determining the overall value of the estate. It helps you decide how and when assets should be distributed and helps you structure the Will appropriately. You will need a precise description of the assets, their location, their value, and whether they are held individually or jointly.
If you include specific gifts, such as items of sentimental value or artworks, describe them clearly in the Will. Remember that assets change over time. Factor this into your plan to avoid unintentionally unequal distributions if an asset is disposed of before you die.
Using a Testamentary Trust
In some cases, it might be beneficial for a Will to establish a testamentary discretionary trust. This trust comes into effect after the will-maker dies. A pre-appointed trustee carries out the administration. The trustee determines how and when estate assets are managed and distributed.
Managed properly, this flexibility allows beneficiaries to access advantageous taxation treatment. It can also protect vulnerable beneficiaries from claims by creditors or ex-partners.
Your Superannuation and Business
Death benefits, including account balances and life insurance, are paid to a ‘dependant’ or in accordance with a Binding Death Benefit Nomination (BDBN). Without a valid BDBN, the trustee may decide the beneficiaries. This process is a vital part of estate planning.
If you have business interests, think about how you would like these dealt with. You may want interests passed down or the business wound up. Some partnerships use buy-sell insurance, allowing a surviving partner to acquire the deceased’s share so the business can continue.
Final Thoughts on Estate Planning
Effective estate planning takes time and careful contemplation. Your plan will usually comprise various documents to ensure the effective management of your affairs. The process often involves collaborating with legal and financial professionals to address every component.
If you or someone you know wants more information or needs help or advice, please call our office on (02) 4987 3344 or email [email protected].