Thinking about mortality isn’t easy. But estate planning ensures assets are protected and loved ones are looked after when you’re no longer here. Getting your affairs in order now offers peace of mind and helps avoid complications later.
The foundations of a good estate plan include:
- Power of attorney (POA): allows someone trusted to make decisions on your behalf if you’re unable to
- Will: outlines how assets are distributed after death and should be reviewed regularly to reflect major life changes
- Testamentary trusts: provide extra protection for beneficiaries, help keep wealth within the family, and may offer tax advantages.
These are challenging ideas to contemplate but having the appropriate legal structures in place will provide peace of mind.
Power of attorney
Around 12.6 per cent of Australians aged 85+ live with dementia or Alzheimer’s. A POA ensures that someone with your best interests at heart can manage your finances or make medical decisions if you lose capacity. There are different types of powers of attorney, and they vary by jurisdiction within Australia. Powers of attorney can also ensure that someone who cares about you has the legal right to make important decisions on your behalf.
A valid will
One of the simplest things that people often overlook is writing a will. A will sets out your wishes as to what happens to your assets when you’re gone. This document is the bones to any successful estate plan and must be updated regularly to ensure any major life changes are accounted for. This can include anything from getting married or having children, to selling the family home. DIY options like will kits exist, but poor drafting can cause costly legal disputes. A solicitor can help ensure clarity and compliance.
Super
Your super isn’t automatically managed by your will. It’s held in trust in your superannuation fund and in legal terms, it’s your super fund trustee who decides how it’s disposed of upon your death. To control who receives your super, you need a Binding Death Benefit Nomination. This directs your super to specific people or your estate, where your will can then determine its distribution.
Testamentary trusts
Some people choose to pass their wealth to their intended beneficiaries via a testamentary trust rather than leave all their assets directly to them.
One of the main benefits of testamentary trusts is they enable your wealth to remain in your bloodline. They also enable wealth to pass in a manner that protects beneficiaries who may be vulnerable due
to marriage or a relationship breakdown, or due to their profession or a business they operate. In other cases, testamentary trusts can simply preserve wealth by ensuring it’s not misspent by beneficiaries on poor lifestyle choices or investment decisions.
These trusts, which are written into the will when planning your estate affairs, can have significant tax benefits. For example, if a beneficiary receives their inheritance under their personal name, they may be liable to pay additional tax on investment earnings or capital gains at their personal marginal tax rate. However, if they take the inheritance through a testamentary trust, particularly where the beneficiary has a high personal marginal tax rate, they may not be liable for as much tax.
Bottom line: don’t leave a mess behind
Estate planning may also involve family trusts or other structures depending on your assets and personal situation. The main point is, if you have significant assets, it’s time to put a plan in place.
Thinking about death or incapacity is tough but doing so now protects your family later. Discuss your wishes with loved ones and seek expert advice to ensure your plan is tax effective, thorough and legally sound.