An estate plan involves more than signing a Will and leaving it in a safe place. An effective estate plan requires consideration of numerous 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 good start to planning the future inheritance and control of your estate, however a Will alone does not appoint a trusted person to look after your financial and property affairs during your lifetime if you are absent or incapacitated. Likewise, a Will cannot appoint a guardian or substitute decision maker to make health and lifestyle decisions on your behalf if you are incapacitated, whilst taking into consideration your own wishes 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 own financial and lifestyle affairs. Speak to your lawyer about the benefits of appointing an attorney and substitute decision maker to assist you if you became 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 or persons as your executor to administer your estate when you die and ensure that it is left to beneficiaries chosen by you. A properly considered estate plan can also assist to maximise the gifts and benefits you leave to your loved ones taking into account appropriate taxation planning. An estate plan should also prepare for an unexpected crisis (illness and incapacity) by appointing a trusted person or persons to manage your affairs if you cannot.
Tip: Think about your current assets and the assets you anticipate accumulating in the future. Consider who you would like to benefit from your estate and how you could maximise the value of your assets for your beneficiaries with proper advice and careful planning.
I can leave joint property to whomever I wish
The right of survivorship means that upon the death of a joint owner of property owned with another as joint tenants (as opposed to a tenancy in common) that asset automatically vests in the surviving owner/s, by operation of law despite any contrary intention expressed in a Will.
Jointly held assets owned in a joint tenancy such as real estate often comprise the bulk of an estate’s value. For spouses and de facto partners, this may be desirable. However, ownership in a joint tenancy may not be appropriate in other circumstances such as where property is held with non- spouse family members, after divorce or separation or with non-family members or other entities.
Tip: Review your asset ownership (real estate, bank accounts, investments) and check how assets 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 in a tenancy in common and left to whomever you wish in your Will.
Superannuation is automatically dealt with in my Will
Many people assume their superannuation will be divided up in accordance with the terms of their Will, however that is usually not 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), as determined by the fund trustee or in accordance with a valid Binding Death Benefit Nomination (BDBN).Your BDBN can however nominate that your Superannuation Death Benefits be paid to your Legal Personal Representative (not your lawyer- the executor named in your will) to then follow the terms of and distribution described in 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 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 one’s deceased estate. They provide a specific order of distribution to the deceased person’s “next of kin”.
These rules are general in nature and take no account of your personal circumstances and wishes.
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 may 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. You may not need to actually update it for each and every change of circumstances, however it is good practice to review it on a regular basis and when you experience major changes in your life.
You should take some caution when making specific gifts of particular assets in your Will, for example details of a particular motor vehicle that you may own. A gift in your Will of a specific asset of considerable value which is subsequently disposed of during your lifetime will cause the particular gift to fail and therefore possibly cause disappointment and may unintentional give rise to an unequal distribution amongst named beneficiaries.
Wills are often 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 if first named executors are unable to act for any reason or beneficiaries are unable to receive a gift.
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 might be needed however it is good practice to make a habit of a regular review. If you separate, divorce, or your financial or personal circumstances change significantly you should contact your lawyer to discuss how such changes might affect your existing Will and estate planning.
Effective estate planning takes time and careful consideration. If you or someone you know wants more information or needs help or advice, please contact Donlan Lawyers on (08) 8312 0022.
Source: Donlan Lawyers