Research shows almost 10 million Australians, don’t have a will. For those in this situation, it means their assets may not go to the people they wish to receive them.
A will is just one part of estate planning, which is the process of deciding how your assets will be organised and managed in the lead-up to and after you pass. While it’s easy to put this task off, paying it proper attention is an important part of wealth management, allowing you to take the pressure off your loved ones at, what will be, a very difficult time.
A will is a legal document that sets out how you wish your assets to be divided upon your death. Anyone who is over 18, and of sound mind, can make one.
A will must be in writing and witnessed by two people, coming under different state-based laws which may be slightly different in each jurisdiction. Here’s a list of the different state-based authorities for you to check out:
You can prepare a will in a number of ways:
Aside from setting out how your assets should be handled, your will may also cover who will look after your children if they are not yet adults, details about any trusts you have established which may continue after your death and how you wish your funeral to be handled.
You should also update your will at significant points during your life. This includes when you marry, have children, get divorced or if your circumstances change in any major way.
When you prepare a will you will also nominate an executor, who is a person or a number of people who are responsible for carrying out the directions you set out in your will. They will also deal with any debts you have and manage your estate on an ongoing basis until it is finalised.
Part of making a will is naming your beneficiaries. These are the people who will receive your assets on your death. You need to decide which of your beneficiaries receives your assets and in what proportion.
While you write your will, it’s also an idea to appoint a power of attorney, who is someone who you nominate to administer your affairs if you are unable to, for example if you suffer an accident or do not have the capacity to do this yourself. There are different types of powers of attorney. A general one will typically be valid for a specific period, for instance while you are out of the country. An enduring power of attorney is ongoing and will remain in place if you can no longer make decisions for yourself. A medical power of attorney can only make decisions about your health. You may also consider appointing a guardian to look after your health if you are unable to for any reason.
A testamentary trust is a financial instrument set out in your will that is established on your death. It will typically hold your assets until a point in time when they pass to your beneficiaries, for example when your children turn 18. You may also use a testamentary trust if your beneficiaries are unable to look after these assets by themselves due to incapacity. They are also used to reduce the risk of assets being split up in divorce proceedings or in the event a beneficiary is bankrupt. You will need to nominate a trustee to look after the trust, which may also involve fees.
A testamentary trust can also be used to manage tax implications for your beneficiaries when you die. Instead of passing assets directly to a beneficiary, they are passed into the trust of which a chosen beneficiary or beneficiaries have control after your death.
Many people take out life insurance as part of estate planning to provide a financial safety net your family can use to pay for your funeral, to meet mortgage repayments or to protect your interests in a business partnership.
You may choose to hold this cover in your super fund. Alternatively, it can be held outside super, in which case your beneficiaries may receive a lump sum from the policy after your death.
Unlike your other assets, superannuation does not form part of your estate and is not part of your will. But deciding who receives your super, which will be distributed as a superannuation death benefit after you die, is still a function of the estate planning process.
You will need to nominate a beneficiary or beneficiaries to receive your death benefit from your super, which includes your super account balance and any insurance benefits. You need to make either a binding or non-binding nomination that sets out who receives your super. A valid binding nomination means your benefit will generally be paid faster and directly in accordance with your wishes. A binding nomination generally expires after three years and must be updated.
A non-binding nomination indicates to the trustee of your super fund your wishes about how you want your super treated after your death. But the trustee ultimately has discretion about how to distribute your super among your dependants.
You can only nominate certain people to receive your super on your death. They include your spouse or de-facto, your children, step-children and adopted children, people who are financially dependent on you and people who are interdependent and have a close relationship with you at the time of your death.
As this shows, estate planning can be complex, especially in blended family situations and if you have a number of different assets. It’s an idea to seek legal advice to ensure when you die, your assets are distributed as you intend.
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The article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 & Australian Credit Licence 233714 (Westpac). This information is current as at 3 July 2020.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.