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 testamentary 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 alone does not appoint a trusted person to look after your financial and property affairs when you are away or if you are incapacitated. Likewise, a Will cannot appoint a guardian 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 you lawyer about the benefits of appointing an attorney or guardian to assist you if you are incapacitated.
Only the rich need an estate plan
This is certainly not the case. No matter what your financial status, an estate plan enables you to appoint a trusted person to administer your assets when you die, ensure your hard-earned property is left to beneficiaries chosen by you and not others, maximise the gifts and benefits you leave to your loved ones through appropriate taxation planning, and prepare for unexpected crisis (illness and incapacity) by appointing somebody you trust to deal with your affairs when you cannot.
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 right of survivorship means that upon the death of an owner of a jointly held asset that asset automatically vests in the surviving owner/s, despite any contrary intention expressed in a Will.
Jointly held assets such as real estate often comprise the bulk of the estate’s value. For spouses and de facto partners, this may be ideal as many would simply wish the surviving partner to benefit. However, joint ownership may not be appropriate such as property held with certain other family members, non-family members or other entities, or property that remains jointly held after divorce or separation.
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 tenancies so that your share of property can be separately held and 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.
Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ (defined by legislation), as determined by the fund trustee or in accordance with a Binding Death Benefit Nomination (BDBN).
Tip: Review your superannuation and life policies 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 beneficiaries.
If I die without a Will my assets go to the Government
If you die intestate your assets are distributed according to pre-determined formulae set by legislation in each state and territory. The rules attempt to reflect society’s ‘expectations’ as to who should benefit from a person’s estate. They provide a specific order of distribution to the deceased person’s next of kin.
The problem with these statutory rules is that they do not necessarily consider the wishes of a deceased person nor his or her unique circumstances.
Tip: Don’t rely on a statutory formula to determine those entitled to benefit from your estate. Although only in the most extreme cases will the Crown have a right to an intestate’s estate, a Will is essential to nominate with clarity your executor and chosen beneficiaries.
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 good practice to review it when you experience major changes in your life.
You should also be careful about naming specific assets in your Will, for example details of a particular vintage car that you may own. A gift in your Will of a specific asset of considerable value which is disposed of during your lifetime may fail and cause an unintentionally unequal distribution amongst beneficiaries.
Wills are generally drafted to provide flexibility with respect to the nature and value of assets held, and to provide for future generations (unborn children) and substitute executors and beneficiaries.
Tip: Flagging to review your Will each year, for example when your annual tax return is prepared, makes good sense. In many cases, no changes will be needed but it is good practice to make a habit of a regular review. If you separate, divorce, or your financial or personal circumstances change significantly contact your lawyer immediately to see how these changes impact your existing Will and, where necessary, prepare a new Will.
Effective estate planning takes time and careful consideration.