Estate planning is a topic that many people would rather not talk about too often, but it’s an important part of the entire financial planning process for anyone with responsibilities, whether they are family or business responsibilities.
With one in three Australian marriages ending in divorce and people living longer, the number of blended families in Australia is increasing and family life is becoming increasingly complex. The need for comprehensive estate planning has never been more apparent.
For many people these days, it means considering all possible scenarios and implications when mapping out how they wish to have their estate – that is, all of your assets and money – managed after they die.
It isn’t easy making difficult decisions about loved ones, and it’s even tougher for those in de facto relationships and second or subsequent marriages, where there are children from previous relationships. The difficulty in choosing beneficiaries and amounts to be bequeathed means that many couples choose not to make a decision at all.
While estate planning laws vary in every state, wills are typically rendered invalid by marriage and may become partially invalid by divorce. So, it’s particularly important for everyone to make a new will after marrying or divorcing.
Following are just some of the estate planning issues you should consider, in consultation with your solicitor and financial planner:
Keep your will up to date – If you already have a will, you should update it when your financial or relationship circumstances change. While remarriage may revoke an existing will, divorce may not.
Provide for dependants in your will – If dependants do not have specified entitlements set out in a will, they may have to make a claim for entitlement through the courts, at expense of the estate.
Nominate guardians for your children – If you have children under the age of 18, appointing a guardian for them in your will may help avoid disputes between family members by making your intentions clear. However, it is not binding as the Family Court can override your choice of guardian and appoint a different guardian where it considers this to be in the child’s best interests.
Careful planning to minimise tax – The executor of a will may decide to sell the estate assets rather than pass them directly onto the beneficiaries. In this case, capital gains tax may be incurred, reducing the money the beneficiaries receive.
Bequeathing assets not owned – People need to understand what they can and can’t bequeath. Assets owned by joint tenants, trusts or companies can’t be included in a will.
Don’t assume superannuation will bypass the estate – Large super funds may automatically pay superannuation benefits to a deceased person’s estate. Having the funds included as part of the estate increases the risk of money falling into the wrong hands if the estate is challenged. To ensure superannuation benefits are paid directly to a beneficiary and not included as part of their estate, a person needs to provide a valid binding death benefit nomination directly to their super fund.
Managing family trusts – Family trusts need trustees to manage them. If, for example, a person stipulates in their will that when they die their sister is to be the person who appoints the trustee, what happens if the sister dies a short time later?
Testamentary Trust – To provide additional protection of your assets, a Testamentary Trust might be an option. Put simply, this is a trust established by a will.
Rather than assets being distributed upon death, some or all of the assets would remain in this trust for the benefit of a specific group of beneficiaries named in the will. There may also be tax advantages in having a testamentary trust due to the flexibility available to ensure that more income is distributed to ‘dependent’ children.
Let’s say a father leaves a sum of money to his son or daughter, who later separates from their spouse, the Family Court in a divorce settlement may rule that the spouse is entitled to a proportion of the inheritance. However, this risk could be reduced if the assets had been left to the children in a trust.
Be clear and concise – Ambiguity in a will can lead to unnecessary disputes over meaning, and the wishes of the deceased person may not be carried out as intended.
While the saying ‘you can’t rule from the grave’ carries some truth, planning for what will happen after you die will ensure your hard earned assets are protected and your wishes carried out.
Estate planning is just as important as planning financially for other stages in your life, such as marriage, starting a family or retirement. After all, why work to create wealth only to see it dissipated by not planning for its distribution after your death?
While only a qualified practitioner can legally draw up a will, a financial planner can help you navigate your way through the complexities of estate planning and provide a framework for ensuring all considerations are covered when mapping out your final wishes.
At ICG Financial Planners we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.