Estate planning might seem like an activity you can afford to put off but in reality it’s something everyone should consider
Appropriately documenting how assets should be distributed in the event of your death protects your interests and those of your loved ones.
Someone who dies without an estate plan risks leaving their family with a complicated administrative burden, warns Hall and Willcox Partner Emma Woolley.
Since no one knows when they will pass away, estate planning should be on the agenda for everyone, she says.
"Quite often people say they don’t need to have an estate plan or a will because they don’t consider they have sufficient assets to worry about or they believe the estate will automatically pass to the people they intend, such as their spouse and children. That’s not the case," Woolley says.
If you pass away without a valid will, state laws determine how your estate will be administered. This may result in assets being distributed against your wishes and unnecessary tax liabilities for beneficiaries.
Early estate planning is even more important for people who have a blended family, have been divorced or have children from more than one relationship.
In these situations, there are a range of competing interests. Woolley says in her experience, the main cause of conflict after a death in a blended family is that people had different expectations about how the estate would be distributed.
"Quite often a person in a new relationship wants to make sure [their partner] is looked after for the rest of their life with other children getting [the remaining assets] once that spouse is no longer with us," she says.
Woolley recommends people with complicated family relationships discuss their plans with their family so they have an opportunity to explain what they have done and why, although she acknowledges that not everyone wants to talk about their finances with the family.
"The key is not to put your head in the sand," she says. "There are a lot of cases where the legacy is a dispute because family members had different expectations."
Not just a will
An effective estate plan includes more than a will.
Jointly-owned properties go to the last surviving owner, so it’s important to understand how such assets are held. Assets held in trusts and superannuation funds are not included in the estate that is covered by a will and need to be dealt with separately.
There are about 600,000 family trusts in Australia. People who have a family trust need to understand who takes control of the structure after their death.
Woolley says "people often overlook superannuation but this can be an extremely valuable asset".
Life insurance policies that pay a benefit into the superannuation fund can boost even a fairly low balance, making it a large asset.
"It can be hundreds of thousands of dollars and if they don’t decide, the law will choose who gets it. For young people, it might go to their parents or siblings and they might not want that," she says.
People need to approach their superannuation fund and complete the right paperwork to identify who should receive the fund’s assets when they die. For self-managed superannuation funds, a death benefit nomination form must be completed to direct how assets will be distributed.
Insurance can be used as an estate planning tool. Woolley recommends taking advice about what type of life insurance cover would be appropriate for your personal circumstances.
People with a policy outside of superannuation should check with their financial adviser to make sure the payout will be directed to the intended beneficiaries. Life insurance payouts from policies held outside of a superannuation fund may go directly to the person named in the policy, bypassing the estate.
An estate plan can also include an enduring power of attorney or living will, which appoints someone to make financial decisions for you if an illness or accident renders you incapable of making those decisions.
Some people might want to consider leaving a charitable legacy in their will, while business owners should address succession planning issues in an estate plan.
Each person’s situation is different and estate planning is a complicated area. It pays to seek specialist advice on what would work best in your personal circumstances.