The fundamentals of smart, safe estate planning

• An estate plan with a valid will ensures you get to decide who inherits your assets, not the courts.
• Trusts can be used as part of an estate plan to protect assets and potentially minimise tax liabilities.
• Regular reviews of your plan with an estate planning adviser should be conducted to ensure it is still fit for purpose as your situation changes.

When a person becomes incapacitated or dies, the surviving family members are all too often left in the dark as they try to sort out financial affairs and wishes.

This lack of preparation can add considerable stress to an already upsetting situation and jeopardise the financial legacy of the deceased. Estate planning is a way to avoid such a scenario and establishes a legal framework to manage and allocate a person’s assets, during their lifetime and after their death.

The following are some of the key elements of an estate plan.

Making a will with the help of an experienced lawyer is the safest way to ensure that inheritance is passed on to the intended beneficiaries. Unfortunately, research over the years indicates that about half of all Australians die without a valid will¹.

Technically, this is called ‘dying intestate’, which means that instead of you determining who will inherit your assets, the courts or an administrator may deal with the estate left behind.

Many different types of assets need to be factored into a will, including business interests, family trusts, superannuation and self-managed superannuation funds (SMSFs). However, just because you have ‘control’ over an asset does not necessarily mean you ‘own’ the asset. So, it can come as a surprise to many people that assets such as super, life insurance policies and jointly owned property and shares fall outside your estate.

This underlines the importance of seeking the advice of a skilled lawyer and financial adviser, rather than opting for a DIY Will that may not be legally binding and could be challenged in court due to a lack of necessary details.

Crucially, a will appoints an executor who is responsible for administering the estate.

Trusts play a key role in estate planning, providing a vehicle to manage and distribute assets to beneficiaries. They can be a powerful financial planning tool that provide for children, protect assets in the event of a bankruptcy or divorce, and ensure that assets pass to children even if the surviving spouse remarries.

One of the strengths of trusts is that they allow you to set specific conditions for asset distribution; for example, a trust may be set up for a child, but the benefit is only payable upon their 21st birthday.

Trusts created under a will are known as testamentary trusts and have become a popular estate planning option for many Australians. They can be useful for a range of reasons, including for wealth management and tax planning.

Super that is paid to a beneficiary after a person’s death is called a ‘superannuation death benefit’. Whether tax will apply to that payment depends on who is the beneficiary. Factors such as if the beneficiary is a dependent under superannuation and tax law (which are different from each other), along with their age and whether they receive the benefit as a lump sum or income stream, can also determine how the benefit is taxed.

These rules are complex and underlie the importance of seeking advice from a financial adviser who is a superannuation and estates specialist. These advisers can also ensure that the funds accumulated in your super account are distributed according to your wishes, and in the most tax-efficient manner.

It is essential to review your superannuation beneficiary nominations regularly to ensure they align with any change in your personal circumstances, such as marriage, divorce or the birth of a child.

There is a range of other key considerations with estate planning, including:

• advance care directives (which allow people to express their wishes regarding medical treatment and end-of-life care)
• enduring guardianship (whereby you appoint someone to make decisions about your health and lifestyle, as opposed to your legal and financial decisions)
• Keeping a register of your important information on the status and whereabouts of your important personal and financial documents, including birth and marriage certificates, house deeds and investment documents; and details about wills, bank accounts, insurances and superannuation).

Remember that estate planning is not a set-and-forget task, but rather an ongoing process. It can be complicated, too, so do not take shortcuts.

Doing so is likely to cause your beneficiaries headaches after your death and may compromise your desired financial legacy.

Providing estate planning financing advice requires specialist skills. For an initial consultation with a Mercer Financial Adviser, please complete the form below and we will be in touch.

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