As we reflect on 2020, it highlights how unexpected life can be and how so much can be out of our control. Last year, due to bushfires in the early part of the year and COVID-19 we saw unprecedented financial, economic, and human loss across not only Australia but the world.
As we dive into 2021 with a mixture of excitement and uncertainty about what is to come, it continues to highlight the importance of preparing for the unexpected. We all know that having an effective and valid Will is important but we all too often put it into the too hard basket, and “Update my Will” continues to slide down the to-do-list.
Everyone knows what a Will is, but a frequently asked question is, ‘What is Estate Planning?’ Estate Planning is the development and preparation of a plan which details your current needs, wants and objectives followed by a strategy for lifetime planning and the passing of your wealth to your family and friends. It considers a succession plan for both death and incapacity. This objective remains the same whether you have a lot of money or a little.
It is recommended that you turn your mind to your Estate Planning at least every two years. This means reviewing your personal and financial circumstances and objectives as well as the personal circumstances of your intended beneficiaries and comparing them with your current estate plan. If there have been any changes, then this may reflect a need to update your Will, your Enduring Powers of Attorney or other estate planning documents.
A regular review can flag any shortcomings in your estate plan, identify potential tax-saving opportunities due to changes in the law or your personal circumstances and it can ensure that your estate planning documents remain legally enforceable. In reviewing your Estate Plan you should consider the following key issues.
1. Lifetime Planning – dealing with incapacity
Many people associate mental incapacity with dementia and old age, but there are many circumstances where age is irrelevant. For example, you may find yourself in a coma or with an acquired brain injury following a motor vehicle accident, or a serious illness may affect your ability to make decisions for yourself. Regardless of your age, it is important to plan and appoint someone you trust to manage your finances or more importantly to make legal, medical and lifestyle decisions for you!
2. Marriage and Divorce
There are many things a soon to be married couple must organise before the big day, but unfortunately, something many people do not realise is that once you are declared husband and wife most Wills prepared prior to marriage will be revoked unless they are made in contemplation of marriage.
Divorce, on the other hand, does not revoke your Will but it does remove your ex-husband/wife as a beneficiary of the estate. The question remains ‘Are your Wills still legally effective?’ It is important to know how particular events or changes in your life affect the validity of your Will.
3. Guardianship of children under 18
If you have children under the age of 18, then you should turn your mind to who will care for them in your absence. Although an appointment of a guardian in your Will is not binding, it does provide the authorities with guidance as to who you believe will do the best job in providing the long term care and support for your children. Directions to your executors, however, are binding and therefore you can include directions in your Will, regarding the use of your home, the hiring of a nanny, the purchase of a car or the payment of travel expenses etc.
4. Superannuation and Death
Without a valid Binding Death Benefit Nomination in place, the Trustee of your Super Fund has the power to determine who will receive your super on your death. Reviewing your superannuation is an important aspect of Estate Planning and should not be done in isolation. The law governing superannuation is strict and can impact upon who you can leave your super death benefits to. For example, parents, siblings and grandchildren do not automatically qualify.
5. SMSF Planning for incapacity and death
Managing your own self managed superannuation fund (SMSF) brings with it further estate planning issues. In addition to contemplating who will be entitled to receive your superannuation death benefit on your death, you must also consider who will take control of your fund if you were to lose capacity or die. The issue of control has become a very important aspect of estate planning with recent cases being disputed in the Courts; lawyers being the only winners. Without a valid binding nomination in place at time of death, the person, or persons in control of your fund will decide who receives the proceeds of your death benefit. Do you trust this person or persons to make a fair and just decision once you are gone or could they decide to keep it for themselves?
6. Life Insurance – who you should nominate as the beneficiary?
Life Insurance can be an important element of an estate plan especially if you have a mortgage and a young family. When nominating the beneficiary of a life policy you should consider the purpose of the policy and how the proceeds could be best used. For example, it may be prudent to pay the policy to your estate where it is held on a testamentary discretionary trust for the benefit of the surviving spouse and children. This can provide substantial taxation savings, especially where the children are of school age.
7. The Family Business
Not only should you plan for the transfer of your personal wealth, but also your business interests. The options available to you will depend upon the type of business you own and how you own it. Most business succession plans will operate outside of the Will, but there are circumstances when you will need to provide directions and additional powers to your executors to ensure that they can carry out your wishes or continue to operate the business until it is sold or transferred. Planning is imperative.
8. Family Trusts and Estate Planning
The assets in your family trust are governed by terms of the trust deed, and therefore you are unable to deal with them via your Will. This statement is true in most cases, but there are a number of aspects which need to be considered when reviewing your estate planning: the position of the Trustee, the power of Appointment, the succession of Appointor and any loans between your beneficiaries and the trust.
9. How will inheriting your assets affect your beneficiaries?
Often we think about who we want to leave our estate to and neglect to consider how this gift of money or property may affect the beneficiary. When reviewing your estate plan, you should consider the personal and financial circumstances of your beneficiaries. For example, are they an undischarged bankrupt, does the beneficiary have a disability, a gambling problem or perhaps some form of addiction which may affect their ability to effectively manage a sizeable sum of money? If you answered yes to any of these, then your Will should deal with the gift prudently and often a testamentary trust should be included.
10. End of life care directives
It is impossible to know how your health will be in the future and you may have ideas about how you would like to live the rest of your life. Although your Will and Enduring Powers of Attorney may still be valid there are steps you can take to ensure your end-of-life care aligns to your wishes. An advance care directive is an important step in confirming your medical and health care plan and can include directives on all of your values and preferences for your future care. Should you no longer be able to make decisions for yourself, it is important that your loved ones have guidance and understanding of your preferences for how you would like your healthcare managed and how you wish to live out the rest of your life. Once completed you can add your advance care directive to your My Health Record so that it is available for your treating doctors if ever required.
Losing a loved one is always an upsetting and traumatic situation. By carefully planning for and updating your Will, Enduring Powers of Attorney and other estate planning documents you are ensuring your wishes are adhered to and your loved ones are taken care of minimising trauma and emotional stress.
Rigby Cooke’s Wills, Trusts and Estates team is well placed to assist you should you have any questions or concerns.
| Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
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