Estate planning: five steps to help make sure your assets end up in the right hands
Ensuring the future is financially secure for you and the people close to you goes beyond planning for retirement. None of us likes to think about what will happen when we pass away, but you can help make sure that your wishes are carried out by ensuring you have an estate plan.
What is your “estate”?
Your estate is made up of what you own, and could include:
- your home
- money in bank accounts, life insurance, super
- personal possessions.Basically, any assets you want to pass on to people, charities or other organisations.
So what do I need to think about?
Do you have an up-to-date Will?
Your assets will be distributed according to the intestacy laws of your state if you don’t have a Will. This may not be the way you would have wanted your assets be distributed.
Do you have a blended family? An up-to-date Will can give you the assurance that your children and stepchildren will be provided for as you intend.
Your solicitor, a private trustee or the Public Trustee can help you choose an executor and draft a legal Will. The document sets out:
- Who will receive your assets after you die – e.g. property, possessions, bank account balances, shares and managed funds.
- Who will look after your children.
- Your wishes regarding your funeral and burial.
It’s possible for a legal Will to be contested; setting out your wishes clearly and with the help of a legal professional can make contesting difficult.
It’s important to note that a Will won’t cover assets that are owned jointly (in a joint tenants arrangement). The surviving tenant will automatically get ownership of your share.
You can amend your Will if your circumstances change, such as when you marry, divorce or welcome the arrival of children or grandchildren. Small changes can be made using a legal document called a Codicil. If you want to make substantial changes, it’s a good idea to create a new Will.
Have you set up a Binding Death Benefit nomination or Non-lapsing Death Benefit nomination for your superannuation?
Super isn’t automatically paid to your estate in the event of your death. Where it is paid will depend on your fund’s rules and any death benefit nominations you’ve made.
What is a Binding Death Benefit nomination or Non-lapsing Death Benefit nomination? It is a written direction to your super fund on how to pay your death benefit – which includes the total super balance and any life insurance held in the fund. The trustee of your super fund must following your Binding or Non-Lapsing Nomination, if valid.
What if I don’t have this type of nomination? The trustee of your super fund may be able to use its discretion to choose which of your eligible beneficiaries receive your death benefit, or a default procedure may apply (for example it may automatically be paid to your estate).
How long is a Binding Death Benefit nomination valid for? In most cases it only remains valid for three years, so it’s important to regularly revise it. A Non-lapsing Death Benefit nomination will (depending on your fund’s rules) generally remains in place unless you cancel it or replace it with a new nomination.
Have you nominated a beneficiary for your life insurance outside super?
Life insurance policies outside super generally let you nominate who should receive the benefit if the life insured passes away. There could be multiple parties involved: typically the life insured, the policy owner, the person paying the policy premiums, and the beneficiary. It’s common for these parties to be one individual, but not essential.
If you are the policy owner and life insured, and don’t nominate a beneficiary, the benefit will be paid to your estate. If the benefit amount is $50,000 or more there is a legal requirement to provide Probate or letters of administration before the benefit can be paid. These are legal documents proving that the executor is authorised to manage your affairs.
Do you understand the tax consequences of how your assets are distributed?
Your beneficiaries may end up with a hefty tax bill if you don’t plan how they will receive your assets. This is because the way you distribute your assets could have tax implications, including Capital Gains Tax (CGT).
Fortunately, there are ways you may be able to minimise tax impacts. For instance:
- Insurance policy proceeds from a super fund are tax-free if they’re paid to dependants and non-super life policy proceeds should generally be tax-free regardless of who it is paid to
- Lump sum super death benefits are received tax free if paid to a death benefits dependant (includes your spouse, former spouse, minor child, financial dependant or interdependent relation).
- A CGT liability can be deferred if a beneficiary of your estate is given an asset rather than the proceeds from the sale of that asset
- Incorporating testamentary trusts into your will can help minimise tax. This is something an estate planning lawyer can help you with and you can find out more about testamentary trusts at ASIC’s MoneySmart website.
Who would you like to handle your financial affairs?
As part of your estate plan you may wish to put in place an Enduring Power of Attorney (EPA). This is when you appoint someone who can manage your financial affairs on your behalf even if you are incapacitated. An EPA will let that person legally act on your behalf up until you pass away, even if you become incapable of managing your own affairs.
Another step worth considering is whether you wish to put in place an enduring Power of Guardianship that allows a person to make medical and lifestyle decisions on your behalf if you’re no longer able to do so.
It’s important to choose someone you trust and seek independent legal advice to make sure you understand the risks involved in giving someone else control over your affairs.
Kurt Fitzgibbon can be contacted on 07 5597 0661, or email email@example.com
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should seek professional advice from a financial adviser and seek tax advice from a registered tax agent.
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