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Financial Planning | Fixed Interest | Managed Funds | Superannuation | Insurance | Estate Planning | Margin Lending | SMSF

Estate Planning

Over 40% of Australians die without a Will (intestate). This means that the assets that they have spent a lifetime accumulating, and the plans and wishes that they have for those assets may never be fulfilled. Their assets, or their estate, will be distributed according to a formula established by the government, rather than according to their wishes.

An essential part of estate planning is to ensure that in the event of your death, the assets from your estate are distributed in accordance with your wishes and in the optimum way. In order to achieve this, it is important that you execute a Will.

Clearly expressing your wishes

If you do not express your wishes clearly, you may be leaving your estate open to disputation. Disputes of this nature have the capacity to destroy relationships among the family and friends that you leave behind.

Do not write lists or letters discussing how you would like your assets distributed. Unfortunately too many people do this. Anything that looks like an "informal Will" may be treated as a Will. This can cause delays, disputes, anxiety and expense. Only write formal Wills, duly signed and witnessed. All of your wishes can be expressed in this document.

Make sure that you make provision for the "residue" of your estate. Inevitably there will be assets that are not specifically noted in your Will. If they are not specifically distributed, they form the "residue" of the estate. If you do not specify how the "residue" is to be treated, it will fall into intestacy and be distributed according to the government formula of intestacy, rather than according to your wishes. You may also wish to specify what shall happen to your body, and whether you wish to be an organ donor.

Make sure that the relevant people know where your Will is stored. A Will that cannot be located is of no value.

Reviewing your Will

When you have a Will you should review it each time you review your overall financial plan, or sooner if your circumstances change including, marriage, separation, divorce, birth of children, death of relatives, purchase or sale of major assets specifically bequeathed or to be bequeathed, adjustment of your superannuation or when you restructure your affairs, such as establishing a family trust. There are many examples of people bequeathing assets which they sold before they passed away, resulting in some beneficiaries getting nothing while others get more than intended.

Obtain advice on what you can bequeath in a Will

You may need professional assistance in determining your assets for the purposes of your Will. While the items that make up your assets may seem obvious to you, special rules may apply which means that some assets do not form part of your estate, for example:

  • assets in joint names as joint tenants, such as the family home and joint bank accounts may not form part of your estate, but pass automatically to the surviving joint owner;
  • life insurance policies are paid to the nominated owner. While the policy may be on your life, the nominated owner may be someone else, such as your spouse;
  • superannuation generally does not form part of your estate. Your superannuation is held by an independent trustee, and is distributed in accordance with the superannuation fund’s trust deed. The distribution of the proceeds on death is usually subject to the trustee’s discretion, and your estate generally has no enforceable claim. It is quite common for a superannuation member to complete a nomination of beneficiary form. Since 1998, the laws have been amended to provide for the nomination to be binding on the trustee if the trust deeds permit this, however, in the majority of cases trust deeds have not been amended to allow for this. You should clarify the position with your fund.

In the absence of a binding nomination, the trustee will pay your superannuation to the most appropriate person, generally your spouse. However, the law provides that this payment can be contested by persons who believe that they are entitled.

Adequately providing for all dependants

Dependants not adequately provided for may contest your Will. This may result in delays in administering your estate, hardship for the loved ones that you wanted to provide for and a cost burden to the estate, which will reduce the ultimate payment to your loved ones. The term dependents is very broad and can include anyone that can prove a dependency on the deceased - not just those people immediately related.

The term "adequately provided for" will depend upon a number of factors such as, the relative size of your estate, the degree of dependence upon you and whether you have a financial and moral responsibility for that person.

If you want to leave someone out of your Will, you should make this clear in your Will including your reasons why. This will not preclude that person from lodging a claim, but it means that they cannot argue that they were simply forgotten. If you intend to leave someone out of your Will you should obtain professional advice.

Remember to take tax into account in distributing assets

It is a common mistake that people do not take tax into account when distributing assets. Liability for Income Tax and Capital Gains Tax (CGT) is a complex area, and you should seek professional advice when deciding how assets are to be distributed.

Gifting to charities and tax-exempt bodies

Careful consideration should be given to gifting assets to charities and tax-exempt bodies, because the gift is deemed to be a disposal for CGT purposes, and the CGT liability is payable by the estate. For this reason, it is often preferable to give cash, which will not incur a CGT liability. Please note, however, special rules may apply to assets gifted under the Cultural Bequests program. Alternatively, you can consider establishing a testamentary charitable trusts. You should seek legal advice of this is a wish of yours.

Appointing an executor

An executor is someone who looks after your personal affairs on your death. It is preferable to avoid appointing someone as executor who might have a conflict of interest, such as a business partner who may wish to buy out your share of the business.

Appointing an executor is not a favour you bestow on a friend. An executor’s role is a complex task which can be time consuming and frustrating. You should consider appointing an arm’s length professional with the necessary expertise.

A common mistake that people make is appointing someone older than themselves, typically their parents, as Executors. This would mean that you are planning on passing away before your parents. Also important is to consider appointing a substitute Executor if the Executor you nominate is unable to, not capable of or not willing to act as Executor of your estate.

Testamentary Trusts

A testamentary trust is a trust created upon your death. Previously, there have been significant taxation advantages from testamentary trusts which has been the chief reason for their popularity. Please note, however, that the taxation of trusts in Australia is subject to change. The cost of establishing and running these trusts must be balanced against possible future tax advantages. You should seek independent legal advice before proceeding. However, testamentary trusts can in some circumstances still be a very tax effective way to provide for your dependents.

Enduring Power of Attorney

Enduring Powers of Attorney enable the ongoing management of your affairs should you become mentally incapacitated at any stage in the future and are unable to do so yourself. Some matters which must be understood when contemplating an Enduring Power of Attorney are:

  • Allows the donor (yourself) to choose who (Attorney) should manage their affairs if they are unable to do so.
  • An Enduring Power of Attorney will continue to be operative despite the supervening mental incapacity of the donor.
  • In order to be effective, the donor must understand the nature and effect of the power when executed.
  • The Attorney will be able to assume complete authority over the donor’s affairs.
  • The Attorney will in general be able to do anything with a donor’s property, which the donor could have done, assuming that the power granted is in such terms.
  • Cannot be revoked once the donor is incompetent, except through the intervention of the Guardianship Administration Board (Now VCAT).

Please note that Attorneys can be appointed:

  • Individually.
  • Jointly in which case the signature of both/all attorneys is required for any transaction.
  • Jointly and severally, in which case one may act independently of the others.

Attorney is simply the person nominated to act on behalf of the donor and does not necessarily have to be a solicitor as the name suggests (attorney). Care must be taken in establishing an Enduring Power of Attorney, because the person you appoint, and the terms of their appointment, will determine how well you will be looked after when you are most vulnerable. Seek professional assistance in this matter.

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