Estate planning

Suze Orman, the best-selling novelist and adviser put the benefits of estate planning very succinctly.

Estate planning is about much more than writing a will. It’s the process of deciding how your assets will be organised and managed in the lead-up to and after you pass.

Good estate planning begins early. It's useful to take the time early on in your life to think through how you want your assets to be distributed when you are no longer here.

There are four key elements of estate planning.

1. Wills
2. Insurance
3. Testamentary trust
4. Understanding superannuation

1. Wills

Research shows almost 12 million Australians, or more than half the adult population, don’t have a will. 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. It’s a task many people put off. But paying proper attention to creating a will 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.

Preparing a will

There are several ways to prepare a will.

• 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.

What should be included in a will?

The prime role of a will is to set out how your assets should be handled on your death. 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.

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.
 

Power of Attorney

It’s also a good idea to appoint a power of attorney, who is someone you nominate to administer your affairs if you are unable to. That may occur if, for example, you suffer an accident or do not have the capacity to administer your affairs 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.
 

How often should I update my will?

It is a good idea to regularly check in on your will, and you should update it at significant points during your life. This includes when you marry, have children, get divorced or if your circumstances change in any major way.
 

2. 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.

3. 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.

They are also used to reduce the risk of assets being split up in divorce proceedings or in the event a beneficiary is bankrupt.

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.

You will need to nominate a trustee to look after the trust, which may involve fees.

 

4. Understanding superannuation

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, stepchildren 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.
 

Summary

Estate planning can be complex, especially in blended family situations and if you have a number of different assets. Working with a financial planner, alongside legal advice, can ensure that when you die, your assets are distributed as you intend. 

Tip for estate planning: Call a family meeting

It's probably not something you want to think about much less discuss with your kids but like it or not, one day we all pass away, and giving our loved ones insight into our financial affairs may make the process a whole lot easier.

That's why when it comes to estate planning it can be a good idea to call a family meeting with your beneficiaries, your financial adviser and your legal adviser.  

Not only can a financial adviser keep things running smoothly and professionally but it's also an opportunity for them to get an overview of your family's circumstances as a whole. This way they are in a better position to determine the best strategy for you as a family.

A family meeting is a good place to discuss the appointment of powers of attorney as well as discussing important issues such as your views on treatment, your healthcare directive and if possible, how you would like to grow old.

Tip for estate planning: SMSFs offer great flexibility.

SMSFs offer great flexibility with your estate planning needs. If the fund’s trust deed allows it, SMSF members can make binding death benefit nominations that do not lapse, unlike many public offer superannuation funds which tend to require binding death benefit nominations to be updated every three years.

In addition, SMSF members may have greater flexibility in specifying how death benefits are to be paid.

 

This document has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 21 August 2023. The information in this document regarding taxation and legislative change is based on policy announcements which are yet to be passed as legislation and may be subject to future change. 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.