The right way to leave your legacy
Very few people like to deliberately think about and plan for life after they die. However, failure to do so means their beneficiaries may suffer financial loss because the Estate isn’t structured the right way or there’s emotional turmoil due to the Estate being contested.
Some people mistakenly believe all that is required is to create a Will.
‘Estate Planning’ is in fact a term that covers not only wills, but many other areas that need to be considered; decided (in writing); and regularly reviewed to ensure that your financial wishes will be distributed and protected the way you want.
Estate planning also includes ensuring your wishes are clearly and legally in place so they can be carried out in the case of physical and/or mental incapacity before you die.
Importantly, today’s Baby Boomers as the key generation of strong business and wealth creators have a heightened sensitivity as to the value of how their wealth is to be passed on. The more complex the family situation, the more complex the Estate structure that may be needed.
Following are a few common needs when it comes to one’s Estate.
Wills – it is important to have one to start
It is estimated that nearly half of all Australians die without a will, or, to use the formal legal term, die ‘intestate’. Further, of the roughly 50 per cent of wills that are created, there are varying reports regarding the percentage of these wills that are either highly flawed or completely invalid.
If you die intestate or your will is invalid, an administrator is appointed by the court to –
- pay your bills and taxes from your assets, and
- distibute the remainder, which may not be how you intended your assets to be distributed.
- Further, if you die intestate and don’t have any living relatives, your estate is paid to the state government.
It is highly recommended that your will be drafted by a lawyer who specialises in wills and estates and that, as part of drafting your will, you consult your financial planner regarding how your will fits in as part of overall estate planning.
Superannuation – death benefits not covered by your will
Deciding who gets your super after you die can seem like a simple task. However, many people fail to nominate a recipient for their super. Perhaps because they either overlook it or assume their last will and testament will cover this anyway. This is not the case. Superannuation is not covered by your will.
If you do not nominate a beneficiary, it is the super fund trustee who ultimately decides who your money goes to. This can, and often does, lead to delays. It often leads to emotionally and financially draining disagreements among family members and others.
Superannuation death benefits also carry with them other complications, each with their own implications. For example, whether or not to opt for a binding or non-binding beneficiary nomination.
The legal case-law around superannuation in estates is complicated, ever-changing and at times surprising in its outcomes and implications – especially when it comes to tax implications after your death and in relation to marriage breakdowns.
Super is often a significant financial legacy for distribution after you die therefore it makes good sense to ensure your overall estate planning includes something about your super.
Testamentary trusts – protecting how assets are passed on
Testamentary trusts are a highly effective tool in estate planning.
A testamentary trust forms part of your will. It is usually used to protect assets, comes into effect when you die, and is administered by your nominated trustee.
Reasons for creating a testamentary trust or trusts include –
- when the beneficiaries are minors;
- when the beneficiaries have diminished mental capacity;
- to provide guidance and oversight to a beneficiary who may not yet be mature enough to use their inheritance wisely;
- when you do not want family assets split as part of a divorce settlement; and
- when you do not want family assets to become part of bankruptcy proceedings.
Powers of attorney
Powers of attorney give a nominated person/s various levels of control over decision-making aspects of your personal, legal and financial life. They are usually created for times of diminished ability to manage one’s own affairs and can be temporary or ongoing.
There are different types of powers of attorney including –
- general powers of attorney – usually for only a set period of time;
- enduring powers of attorney – which are ongoing;
- medical powers of attorney – relate to health and medical decisions; and
- people can also create enduring powers of guardianship, anticipatory directions and advance healthcare directives (or living wills).
All these legal documents directly impact the way your affairs are managed while you are alive and therefore impact what is left after you die. They should form part of your estate planning process and be drafted in consultation with qualified legal and financial planning practitioners.