Estate planning – it’s more than a will

We all live in hope, that when we pass, we’re not forgotten.

We’d also like to believe that the money we’ve worked so hard for will set our kids and grandkids up for a better life.

But, for those who don’t have a plan in place, and would rather leave this to chance, there’s a risk that your wish might not come true, which is why estate planning could benefit. 

What is estate planning?

Estate planning involves developing a strategy to deal with your assets after you die – the legal instruments and structures, such as a will, you put in place to transfer your assets in the event of death.1

The importance of writing a will

If you pass without a will, your wealth will be distributed in line with the state government formula that applies in your state/territory, known as intestacy. This means your assets may be distributed against your wishes and could incur higher tax liabilities.

Having a will is therefore important in estate planning, as it defines who you nominate to receive your wealth. It can also include who you choose to look after your children if they’re under the age of 18, and instructions about your funeral.

DIY wills

Estate laws are complex, so taking a do-it-yourself approach to your will, may cause more stress than you need. Consider having it professionally drafted by a solicitor, a private trustee or the Public Trustee for your state or territory.

Keep it updated

Key events that happen to you may trigger a review of your will. For instance, if you dispose of or buy new assets, you may want to consider whether it’s worth amending your will to reflect this.

Nominate an executor for your estate plan

An important part of estate planning is the nomination of an executor. This person is responsible for distributing your wealth among your beneficiaries and paying off any debts when you pass.

You may choose to name a family member as your executor, although appointing a third party such as your solicitor, accountant or a public trustee may ease the burden on your family members. However, there is a cost associated with this.

Considering tax in your estate plan

Tax considerations around your estate planning can be complex and vary depending on your individual circumstances. There are several strategies you can use to manage the effective transfer of assets to your beneficiaries.

Setting up a testamentary trust can be a simple, tax effective way of estate planning. Or, rather than selling your assets and distributing the proceeds, you can elect to transfer the assets directly so the burden of capital gains tax can be spread more evenly across your beneficiaries.

Consider trust for effective tax management

Finding ways to manage your tax helps to ensure your wealth is protected, as well as being, a key part of estate planning.

Create a trust

Trusts can help manage your tax especially when it comes to capital gains and income tax.

A good example of this is a testamentary trust, which in essence, passes on control of your assets rather than the assets themselves.2

Instead of passing assets directly to a beneficiary, they are passed into a trust which a chosen beneficiary/s is in control of. This does not take place until your death.

Your spouse, for instance, could be the principal beneficiary initially, with your children and grandchildren as future beneficiaries when they reach 18 years of age.

But like everything, there are some disadvantages with testamentary trusts to keep in mind. For instance, there are specific requirements you need to meet and if you decide to appoint a professional as a trustee, you’ll have to cover fees for this service.

Getting the right level of insurance

In many cases life insurance forms an important part of estate planning as it provides a financial safety net which your family can use to, pay for funeral expenses, enable the payout of large debt such as a mortgage or buy out a business partnership for instance.

Many super funds offer life insurance which can be adjusted according to your needs. If you hold life insurance outside of your super, a lump sum will be paid to any nominated beneficiaries upon your passing.

Organising your super

Superannuation is not an asset of your estate, so it’s not included in your will but distributed as a superannuation death benefit. Nominating a beneficiary can help you ensure your death benefit (which includes your super account balance, plus any insurance benefits payable) goes to your loved ones, helping you contribute to their future even after you’re no longer around.

The person you nominate must either by your Legal Personal Representative (the person you nominate to execute your will), or a dependent (for superannuation purposes) at the time of your death.  Keep in mind, that dependants for superannuation purposes are generally classed as your spouse (married or de-facto), your children (including step-children or adopted children), individuals who are financially dependent on you or with whom you have an interdependency relationship at the time of your death.

It's also important to understand the difference between a binding and non-binding nomination. A valid binding nomination means your benefit will generally be paid faster and directly in accordance with your wishes. A binding nomination does expire after three years so you do have to keep it updated.

A non-binding nomination indicates to the trustee of your super fund your wish but the Trustee ultimately decides how to distribute your super amongst your dependants — even if it may not be what you had in mind.3

[1] https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/Tax-governance/Tax-governance-guide-for-privately-owned-groups/Estate-planning/
[2] https://www.propertyobserver.com.au/financing/16802-careful-estate-planning-will-make-sure-your-assets-are-transferred-smoothly-ken-raiss.html
[3] https://www.bt.com.au/personal/help/nominate-a-beneficiary-for-your-super.html

Next: When there's a will, there's a family meeting 

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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 21 October 2019.

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.