Estate planning is something many of us put off until later … but tackling the issue now can smooth the way for your family and protect your own interests.
When you have a family, the focus of your concerns tends to shift from yourself to providing for them. Whatever life stage you’re at right now, to create long term security for both yourself and your family, you need to consider several
Making a will
If you are aged 18 or over and of sound mind, it may be prudent to make a will. Don’t be tempted to put it off, because if the worst happens and you die intestate (without a will) your assets will be distributed according to the laws of the State or territory in which you lived at the time of your death, which may not match your wishes.
Writing a will doesn’t have to be difficult or complicated. Before you start, work with your Wealthwise financial adviser, in conjunction with your legal or tax adviser, to ensure that your assets and investments are appropriately structured, particularly with regard to potential stamp duty and Capital Gains Tax.
When you’re writing a will, carefully consider any family dynamics. Could your will make existing tensions worse? Are you providing for the best interests of everyone concerned? Should you consider a testamentary trust to control how beneficiaries will receive their inheritance1? A trust may be relevant if you need to provide a regular income for young children, dependants with an intellectual disability or anyone who may not be able to manage money.
Remember also that any will you have already made will generally be revoked when you get married, so it is essential that you write a new will whenever your circumstances change, including:
- marriage or divorce (including de facto relationships and separation)
- birth or adoption of a child
- purchase of a home or any other substantial investment
- death of a beneficiary in your will (eg partner, child, relative or friend).
What’s not covered by a will
Most of your assets, including possessions, property, money in bank accounts and investments, will become part of your estate once you’re deceased and will therefore be governed by the terms of your will.
Securing your family’s future
But there are a number of assets that aren’t covered by your will, such as:
- assets owned as a joint tenant (your share will go to the joint tenant)
- assets owned by a company or held in a trust superannuation death benefits or life insurance
- proceeds that are paid directly to a beneficiary rather than to your estate
If you have life insurance outside of super, you can usually nominate a beneficiary and any payout will go directly to that beneficiary (or beneficiaries) rather than to your estate.
Don’t forget to take this into account when you are planning your estate.
What about you?
You may also want to consider a Power of Attorney (PoA) if you believe you may become unable to manage your own affairs.
This allows someone to act legally on your behalf. A PoA is only valid during your life. When you die, your will and executor step in. Another option is appointing an ‘enduring guardian’, who can make personal decisions on your behalf such as where you should live and what medical treatment you should receive.
The legislation, types of PoAs and guardianship powers vary in each State and territory so it would be prudent to seek legal advice to ensure you structure them in a manner that is most appropriate to your situation.
Financial Wisdom Limited Insights newsletter May/June 2011
1 A testamentary trust is a trust established by someone’s will. It comes into existence only when that person dies. Including a testamentary trust in your will can be useful for making tax effective distributions to beneficiaries under 18, caring for children or a dependant who is incapacitated, and preventing beneficiaries from inappropriately spending their inheritance.