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Estate Planning Guide

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What Is Estate Planning?

Estate planning is more than just preparing a will.

Proper estate planning is not just a matter of having a will. For the same reason that you may wish to maximise your assets over your lifetime, it is important to ensure that in the event of your death or loss of capacity, both you and your family are provided for in the most effective way.

A well-arranged and executed estate plan ensures that your assets are distributed according to your wishes, rather than this being determined by the state. It also provides a mechanism for your chosen person to step in and make important lifestyle and financial decisions on your behalf if you are unable to do so yourself.

Before undertaking estate planning you should consult your financial adviser. Working with your adviser and accredited specialist estate planner can help ensure your assets are distributed as per your wishes in a tax effective manner.

Common Estate Planning Documents

A will – this is a legal document that clearly sets out your directions and wishes for the distribution of your assets, payment of debts, and appointment of important roles after your death. This may include complex structures such as testamentary trusts. Having a clear, legally valid and up-to-date will is the best way to help ensure that your assets are protected and distributed according to your wishes.

A power of attorney – this ensures that the right person is appointed to make financial decisions for you in the event that you lose capacity. Failure to have a power of attorney can mean that the state decides who will manage your finances if you lose capacity.

An appointment of enduring guardian – this ensures that the right person is appointed to make lifestyle and healthcare decisions for you in the event that you lose capacity. Even people who have powers of attorney often do not have appointments of enduring guardian in place, even though lifestyle and healthcare decisions can be just as important.

A recent study by the comparison website found that 52% of Australian adults don’t have a will. Unfortunately, people can and do pass away unexpectedly and failing to have a will means significantly more uncertainty and stress on the person’s family. It also means that the person’s estate will be dealt with according to specific legislation, rather than the person’s wishes. In some cases, this can even mean that the person’s estate passes to the government. Having a will is vital to protect your loved ones and ensure your wishes are met.

Advantages of Estate Planning

The advantages of obtaining advice from an estate planning specialist are too numerous to list in their entirety. However, the advantages can include:

Asset protection for your beneficiaries
Tax advantages (including reducing the income tax payable by beneficiaries, and avoiding unnecessary taxes on your estate such as capital gains tax)
Consideration of complexities such as the effect of divorce, remarriage and blended families
Consideration of superannuation and other mechanisms such as family trusts, which are not necessarily covered by your will
Advice as to how to minimise the chance of your will being contested

Estate Planning Checklist

The list below outlines some key estate planning areas and considerations to discuss with your financial adviser, solicitor and/or registered tax agent.

Is your will up-to-date?
Do you have a Power of Attorney?
Have you appointed an Enduring Guardian?
Have you completed a valid and up to date nomination for your superannuation?
Have you reviewed your circumstances including provisions in your Will for the creation of a testamentary trust in the event of your death?
If you have a family trust or self managed super fund, does your will have the specific wording necessary to ensure that the assets in those structures are dealt with in accordance with your wishes?
Have you had your superannuation Death Benefit Nominations reviewed by an estate planning specialist to ensure that they will give effect to your wishes?
Will enough money (including the proceeds from insurance) become available to enable your dependants to maintain their lifestyle if you pass away?
Have you reviewed if you could benefit from passing on some of your wealth before you pass away?

If you answer no to any of the above it is important you discuss with your financial adviser, solicitor and/or registered tax agent to ensure that your plans are consistent with your personal needs and circumstances.

When Should You Update Your Will?

Your will should be reviewed frequently and updated when necessary around significant changes in your life. It is important that your will remains relevant and suits your circumstances.

Events that could trigger a review of your will include:

You get married or divorced, enter into a new relationship, or end an existing relationship
Your assets significantly increase in value or change in structure
Birth of a baby
Death of a relative or potential beneficiary
You enter into, cease or change the structure of a business venture
If there are any tax or law changes that change the outcomes of your existing arrangements.

Who Should You See for Estate Planning Services?

See an Accredited Estate Planning Specialist

In the past, many people have believed their wishes, when they pass, could be adequately covered by a standard will or by using a do it yourself will kit. This has caused a huge number of problems for the loved ones left behind, as poorly worded wills can leave estates vulnerable and family and loved ones left substantially worse off. Poorly formulated wills can lead to:

Tax implications
Legal fees
Loss of inheritance
Wishes overruled
Legal fights in the Supreme Court

The costs for these issues can run into the tens of thousands of dollars.

What qualifications to look for

While many solicitors hold themselves out as being able to prepare wills, very few truly specialise in estate planning or provide a service that adequately provides all of the above advantages. Although not the only indicator of quality, membership of organisations such as the Society of Trust and Estate Practitioners (STEP), and the Accredited Specialist (Wills & Estates) designation by the Law Society of New South Wales can demonstrate particular expertise in the area of estate planning.

Considerations for Preparing a Will

Below is a list of things you need to consider when drafting your will with an accredited specialist:

Who should you appoint as your beneficiaries?
What assets do you want your beneficiaries to receive?
What type of will do you need?
Who should be your executor? Should you use a trustee company?
Should you appoint guardians for children?

Seek advice

To find out more about Wills and how they fit into your broader estate planning, we recommend you speak to your financial adviser and a suitably experienced solicitor.

The Implications of Different Types of Assets

To properly formulate a will it is beneficial to understand the implications of the different types of assets in your estate, the way different assets are treated and the options you have with each asset class. Ensuring your assets go to the people you want after you pass way is not always as straightforward as writing it in your will.

How your estate is distributed depends on:

if you owned an asset individually or jointly (and the legal structure of the ownership for example through a company or trust)
State or Territory based legislation and
instructions laid out in your will.

Estate or Non-Estate Assets

Assets you own individually are either classified as estate or non-estate assets.

Estate assets
Estate assets are automatically part of your estate when you pass away. This means they will be dealt with according to your wishes in your will.

Non-estate assets
Non-estate assets do not automatically form part of your estate when you pass away. It is vital that you understand the implications of non-estate assets when writing your will so you can make arrangements to ensure these assets are passed on as per your wishes.

Estate Planning Figure 1

Seek advice

Your financial adviser, together with your taxation and legal professionals, can help you assess the estate planning implications for each asset and investment you own and assist you to make suitable arrangements. They can also help you in ensuring that any future investments you make are structured in a way that is consistent with your estate planning preferences and objectives.

Contact the award-winning team at Elliot Watson Financial Planning. Contact us on 02 4038 1623 for an initial consultation to discuss how we can help you with estate planning.

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