Estate planning - what you need to know

Research shows almost 12 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.

How to write a will

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:

• ACT
• Northern Territory
• NSW
• Queensland
• South Australia 
• Tasmania
• Victoria 
• Western Australia

You can prepare a will in a number of ways:

• Instruct your personal legal representative, often a lawyer, to draft one for you. This will involve a briefing during which you will outline how you wish your affairs to be handled after your death. This will typically involve a fee.
• Ask a government body such as your state-based public trustee to help you draft a will. This may be a free service for some groups such as pensioners; for others it will involve a fee.
• Complete a will kit.

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.

The role of insurance

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.

Why establish a testamentary trust?

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. 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.

Understanding how superannuation works

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.

Next: When there's a Will there's a family meeting

References

https://www.finder.com.au/australians-have-no-estate-plans