An estate plan involves more than signing a Will and leaving it in a safe place. An effective estate plan requires consideration of several matters and ongoing review to ensure it reflects your wishes and covers unexpected events.
In this article we look at some misconceptions about Wills and estate planning and dispel some common myths. The information is general only and you should obtain professional advice specific to your circumstances before you undertake any course of action.
I have a Will – isn’t that an ‘estate plan’?
A Will is a great start to planning your estate. However, a Will does not appoint a trusted person or people to look after your affairs and decision-making when you are incapacitated or away. Likewise, a Will does not appoint a substitute decision-maker to make health and lifestyle choices on your behalf if you are incapacitated, taking into consideration your morals and values.
Tip: Various legal documents form part of your overall estate plan. Think about what you would do if the unforeseen happened and you could no longer manage your affairs. Talk to your lawyer about the benefits of appointing a trusted person to assist you should you become incapacitated at a later time.
Only the rich need an estate plan
This is certainly not the case. No matter your financial status, an estate plan enables you to appoint a trusted person (or trusted people) to achieve your wishes and express your preferred outcomes.
You may well want to ensure that a family member or loved one is properly maintained and accommodated when you are no longer able to provide for them. Your estate planning objective may be to minimise tax, ensuring that someone in particular receives the benefits of your assets, provide guidance to those tasked with making decisions on your behalf, or simply just be preparations for an unexpected crisis through illness and/or incapacity.
Tip: Think about your current assets and the assets you aim to accumulate in the future – they soon add up. Think about who you would like to benefit from your estate and how you can maximise the value of your assets for your beneficiaries.
I can leave joint property to whomever I wish
The law of survivorship prevails over a Will. This means that the surviving joint owner receives the deceased joint owner’s share despite any contrary intention expressed in a Will.
There a numerous assets that can be held jointly, including bank accounts and real property. For spouses and de facto partners, a joint asset may be ideal and effective estate planning. However, joint ownership may not always be appropriate, particularly if the property is held with other family members, non-family members or entities. There are other circumstances where it may be appropriate to sever a joint tenancy, say when you separate or divorce.
Tip: Review your assets (real estate, bank accounts, investments) and check how they are held. Your lawyer can assist in this process and, if necessary, sever joint interests in assets so that your share of property can be separately held, sold, transferred or otherwise left to whomever you wish.
Superannuation is automatically dealt with in my Will
Many people assume their superannuation will be divided up in accordance with the wishes in their Will, but that is not necessarily the case.
Superannuation death benefits, comprising a member’s superannuation account balance and any life insurance payments held for their benefit in their superannuation fund, can only be paid directly to a ‘dependant’ (defined by legislation). Further, the trustee of the superannuation fund may decide whom of your dependant(s) receive the benefits from your superannuation fund. It is possible to nominate the intended beneficiaries of your superannuation entitlements by lodging a Binding Death Benefit Nomination (BDBN). It is also possible to appoint your deceased estate as the beneficiary pursuant to a BDBN so that it then becomes distributed in accordance with your Will.
Tip: Review your superannuation nominations to determine whether you have in place a valid and current BDBN. Talk to your lawyer about the formalities required to execute a BDBN and strategies to minimise adverse tax implications on the payment of your death benefits to your intended beneficiaries.
If I die without a Will my assets go to the Government
If you die without a Will, your estate will be considered ‘intestate’. In that instance, your assets are distributed according to the legislation that applies in the State or Territory where the assets exist. The intestacy laws attempt to reflect society’s ‘expectations’ as to who should benefit from a person’s estate and provide a specific order of distribution to the deceased person’s next of kin.
The significant issue with the intestacy laws is that they do not necessarily consider the wishes of a deceased person, the legitimate competing interests of the next of kin, or disqualify persons who are separated or estranged.
It is only in the most extreme of cases that the Government will have the highest right to receive an intestate’s estate.
Tip: It is unwise and generally not cost effective to rely upon the intestacy laws. The Supreme Court is capable of rectifying the injustice created by operation of the intestacy laws; however, such legal proceedings are generally expensive. A professionally drafted Will is an essential and cost-effective mechanism to achieve your testamentary wishes.
I need to update my Will when I have a child or more children, move or acquire new assets
You should always review your Will when your personal and financial circumstances change significantly. Your Will may already provide for children (or future children) and you may not need to update it for every change, but it is sensible to review your Will when you experience major changes in your life.
Caution ought to be exercised when listing specific assets in your Will, for example gifting a vintage motor vehicle. Such an asset may not be in your possession at the time of your passing, which could result in a failed gift and potentially result in an unequal distribution amongst your beneficiaries and cause conflict.
Wills are generally drafted to provide flexibility with respect to the nature and value of assets held, and to provide for contingencies, such as future children, substitute executors and reserve beneficiaries.
Tip: A periodic review of your Will each year makes good sense. In many cases, a professional drafted Will is unlikely to require much (if any) alteration until a significant event occurs. If you commence a de facto relationship, marry, separate, divorce, or your financial or personal circumstances change significantly, contact your lawyer immediately to see how these changes impact your existing Will.
Conclusion
Effective estate planning takes time and careful consideration. If you or someone you know wants more information or needs help or advice, please contact us on 08 8443 4888 or email [email protected].