Deciding what will happen to your estate when you die is something many people would prefer not to think about. However, if you do not plan for the future, your loved ones may not benefit from your assets when you are gone.
Effective estate planning requires various considerations. Even those with ‘simple’ family structures and modest assets should plan how their estate will be distributed after they die, and how their legal and financial affairs are managed if they are incapacitated. Good estate planning requires:
- Preparing for the inevitable – having a valid Will to appoint an executor / trustee and to determine who receives your assets when you die.
- Planning for the unforeseen – ensuring powers of attorney and appointments of enduring guardian are in place so your legal, financial and health affairs can be dealt with appropriately if you become ill or incapacitated.
- Ensuring your estate maintains value – distributing your assets in the most tax-effective manner, using a tailored approach specific to your circumstances.
- Protecting vulnerable beneficiaries – creating testamentary trusts to safeguard at-risk beneficiaries from third party creditors.
- Succession planning – ensuring appropriate arrangements are in place for business and company interests, whether those interests are to be wound up or handed down through generations.
- Minimising the potential for family provision claims – understanding family provision and implementing strategies to limit such claims.
Making a Will
All adults should have a valid Will.
A Will is a legal document that appoints an executor to oversee the administration of your estate and provides instructions on how your assets should be divided after you die. Your Will can also indicate to your family your wishes on other important matters such as who you choose as guardians of your children and specific burial arrangements. Making a Will means security for your family and helps to alleviate additional stress for your loved ones at a time when they are already grieving.
Making a Will is not a one-size-fits-all task, and should take into account a person’s individual, family and financial circumstances. Your Will needs to be structured so it is certain, avoids ambiguous language, protects your hard-earned assets and minimises the potential for disputes.
Dying without a Will is referred to as dying intestate. In such cases, your assets will be divided according to the rules of intestacy and it is quite possible that your estate will not be distributed as you would have desired.
Once your Will is in place, it is sensible to review it regularly with guidance from your lawyer. Changes in your personal and financial situation may create problems for others in interpreting your wishes in a Will that has not been updated to reflect new circumstances.
The effect of a trust is the separation of the beneficial, from the legal ownership of property. Holding assets in trust can protect them from claims by third party creditors in the event of bankruptcy, insolvency, court or family law proceedings.
A testamentary trust is a discretionary trust contained in a Will that comes into effect when the Will maker dies. A trustee is pre-appointed to manage the trust and may choose how and when the deceased’s assets are distributed to beneficiaries. The flexibility and control in distributing assets has potential benefits including the protection of vulnerable ‘at-risk’ beneficiaries such as minors, those with intellectual disabilities or drug and alcohol addictions. A testamentary trust may also result in more favourable tax outcomes for your beneficiaries.
Even modest estates may benefit from having a testamentary trust, particularly where the testator is part of a blended family.
Trusts are complex and advice and guidance is important to ensure the trust is compliant, structured to achieve the required objectives, and that any stamp duty and taxation implications are considered.
Making the most of your superannuation
Death benefits of a superannuation account are paid to an eligible ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN). Preparing a BDBN can help to ensure that your superannuation benefits are paid to your intended beneficiaries and they receive the most advantageous tax treatment.
Consideration of the way death benefits are taxed in the hands of the recipient, is important to ensure the most tax-effective results are achieved.
Essentially, a spouse or partner will be considered a tax-dependant under taxation law and accordingly, will receive death benefits tax free. Alternatively, whilst adult children are considered dependants under superannuation legislation, they are not ‘tax-dependants’ and may need to pay tax on some death benefit components.
Business succession planning
If you have business or company interests, you should also consider strategies to mitigate risk, protect assets and deal with business continuity in the event of your death or other events that cause business disruption.
We work with individuals, families and businesses to put in place strategies to protect business and personal wealth, to ensure hard-earned assets are safeguarded in the face of life’s uncertainties. In doing so, we often collaborate with financial advisors and accountants to ensure a holistic approach is taken and that both financial and legal options are considered to best meet our clients’ needs.
Our experienced lawyers can guide you through the complex process of estate and succession planning. We will advise on the best way to protect your assets for future generations and ensure your estate planning documents provide clarity to minimise the potential for disputes and estate challenges.