Thinking about an estate plan can be overwhelming. The sheer magnitude of the decisions to be made, combined with the number of documents involved in the process, may put us off the idea of even getting started.
Christmas time, however, is that time of year when we tend to spend time with family and reflect on what is truly important to us. For most of us, no year is more poignant than Christmas 2020 with the imposing restrictions that have been inflicted upon us in wake of the Coronavirus. We may be feeling grateful to have loved ones, who were previously living and working abroad or interstate, sitting around the kitchen table with us. On the flipside, we may be feeling the distance or isolation more than ever with the strict border closures in place. This year, many of us have considered, “what if I, or someone I love, becomes unwell?”. It’s a striking reminder that we should all be proactive about having a plan in place for if something does happen to us and we can’t make our own personal or financial decisions.
Creating an estate plan is a process. Our circumstances change over time, and likewise, our ideas about how we’d like to be cared for, who might take care of our dependents if something happens to us, or how we’d like our wealth to be distributed after we pass away, might look different in the coming years. This is normal. What’s important is putting an estate plan in place, so that you have the peace of mind in knowing that you are looked after during your lifetime, and that your loved ones will receive the benefit of your estate when you die.
What is an Estate Plan?
Estate planning is about figuring out the best way to organise your personal and financial affairs for the future. Estate planning isn’t just about ‘having a Will’, although a Will does form an important part of your estate plan. It’s also about:
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Deciding who will act on your behalf if, for any reason, you become unable to make your own decisions;
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Thinking ahead to protect vulnerable family members;
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Choosing whether your superannuation and life insurance will be included in your estate or whether these funds are paid directly to an eligible beneficiary;
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Using a trust structure to protect your assets and gain tax benefits;
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Organising the smooth transfer of any business interests you may have.
Why is Estate Planning Important?
Estate planning isn’t just for ‘wealthy people’. Some of the most important decisions you need to think about in the event of “if I become unwell and can’t advocate for myself” and “when I pass away” are choices you need to make regarding your personal circumstances, including protecting loved ones who have special needs or who are children.
When you do pass away, careful consideration needs to be given to what your assets are, what sort of ownership you have over these assets and who you would like them to go to. The estate planning process allows you to clarify your estate planning goals - what do you want to achieve with the transfer of your wealth? For some, it’s the perpetual succession of wealth across multiple generations whereas for others, it’s about protecting your assets, or providing tax planning opportunities.
Organising your estate planning documentation, including your Will, and appropriate attorney and guardianship documents, will minimise unexpected stress and financial expenses for your loved ones if you become incapacitated or when you die. We all want to ensure that our children’s inheritance is protected in the event of a relationship breakdown, or from creditors, which is why it’s vital to obtain professional financial advice.
Why Is ‘Having a Will’ Not Enough?
Your Will forms a significant part of your estate plan and details what you’d like to see happen to your assets after you die, however, it’s important to ascertain what estate assets and non-estate assets you own. Only estate assets are included in a Will, therefore, assets that are owned by a family trust, or your superannuation and life insurance, aren’t covered by your Will. Similarly, assets owned as joint tenants - for example - the family home, may not flow directly into your estate.
What is an Estate Asset?
An estate asset is an asset held in your own personal name and may include:
Any assets that you own with another person as ‘tenants in common’ are also considered estate assets. However, assets as joint tenants are considered non-estate assets. A common example of this is the family home. If this is owned as a joint asset between ‘Mum’ and ‘Dad’, upon the passing of ‘Mum’, her share will automatically pass to ‘Dad’ regardless of what is stated in Mum’s Will. If you don’t want the rules of survivorship to apply in the instance of any assets you own as joint tenants, you’ll need to take steps to sever this tenancy so that the asset is owned as tenants in common instead. We will assist you with this as part of the estate planning process.
What is a Non-Estate Asset?
A non-estate asset cannot be dealt with in accordance with your Will and therefore, these assets won’t go through the probate process after you pass away.
Your superannuation is a non-estate asset and unless you include your super in your estate plan, the trustee of your superannuation fund will decide which dependents to pay your superannuation to. You may have completed a binding death benefit nomination, however, it’s important to note that binding death benefit nominations have strict compliance issues in place to determine whether or not they are valid.
Life insurance is also a non-estate asset. If a beneficiary has been nominated on your life insurance, your life insurer will pay the beneficiary directly and these proceeds will not flow through to your estate. It’s important to discuss your estate planning goals with your advisor, as if you’d like for any life insurance proceeds to flow through to your estate and be offered the protection of a testamentary trust, you’ll need to put steps in place to ensure that these funds are treated in a specific manner.
What Happens to Assets Held in a Discretionary Family Trust or a Testamentary Trust?
Any assets held within a trust are owned by the trust itself, not you personally. Trusts are an important tool utilised in asset protection and may be beneficial to your specific estate planning objectives.
A family trust will continue to operate after you die and allows for perpetual succession. That is, your wealth can be carried over several generations. There are also tax planning opportunities available via the use of a family trust.
Testamentary trusts are trusts that come into effect after you pass away. A testamentary trust is administered by a trustee, who you usually name in your Will. The role of the trustee is to take care of the assets within the trust until your beneficiaries are able to receive it, (i.e. you may decree that your children need to reach a certain age, or meet a certain goal such as getting married or achieving a qualification).
Do I Need an Enduring Power of Attorney?
Who would look after your financial affairs if you became unwell, or unable to make your own decisions due to incapacitation? Without a formal Enduring Power of Attorney document in place, even your spouse is unable to sign for you, or make decisions on your behalf. An Enduring Power of Attorney will prevent the government from stepping in on your behalf to manage your financial affairs if you become unable to manage them on your own.
An Enduring Power of Guardianship, on the other hand, is a legal document that allows a person of your choosing to make personal decisions on your behalf if you have an accident or become unable to make these decisions for yourself. Personal decisions may involve your medical treatment, and the lifestyle you lead (who you live with, where you live, the support that you receive etc.). Your Advisor may recommend an EPA or both and EPA and EPG form part of your estate plan, and these documents may be signed at the same time as your Will.
How Do I Get Started?
Starting the process for getting your estate in order does not have to be complicated or expensive. You can simply have a discussion with Gavin, or your Client Manager, about creating or updating your Will and Estate Plan. We will meet with you to discuss everything you need to know about how the process works, how long it will take and what it may cost. Finally, we can organise any legal documents on your behalf, both quickly and in a cost-efficient manner.
2020 brought with it a lot of uncertainty around our financial security, and the direction that life was headed. Why not start 2021 with the peace of mind and certainty in knowing that your personal fairs and financial house is in order should something happen to you, or in the event of your passing?
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