FocusOn - Estate Planning

What is Estate Planning?

Simply put, Estate Planning is a way of ensuring that any assets you hold are passed on to beneficiaries in accordance with your wishes, and in a way that is tax effective.  One of the most common methods of planning your estate is to prepare a Will. However, Estate Planning is much more than that.

How does a Will work?

A Will is a legal document detailing how you wish your assets to be distributed after your death. It also nominates an executor to deal with your Estate upon death.

If you die ‘intestate’ (without a valid Will) the Courts will appoint an Administrator to distribute your assets on your behalf in accordance with a Government formula, which can be a costly and lengthy process.  This formula does not take into account what your intentions were.

What is not covered by a Will?

Superannuation

Generally superannuation will not form part of your Estate, and will be distributed by the fund’s trustees in accordance with any instructions you have provided.

When you want certainty that your superannuation benefits will flow to particular beneficiaries (for example, children from a previous relationship) binding nominations can be put in place with the trustee of your superannuation fund to ensure your wishes are met, otherwise your superannuation benefits may pass automatically to your spouse or your Estate depending on the Fund.

Life Insurance

If your life insurance is held through your superannuation fund, the benefits will be paid to the fund and distributed with your superannuation benefits as determined by the Trustees of the Superannuation Fund.

For life insurance held independently outside of superannuation, the funds are automatically distributed to the policy owner.  If you have nominated yourself as the policy owner, the proceeds from the insurance policy will form part of your Estate.

Jointly held assets

In some cases, you may own an asset with one or more other parties.  The type of ownership structure will determine whether these assets form part of your estate.  Assets that are held by more than one party can be jointly held, or held as tenants in common.  Jointly held assets are those where each party has a joint entitlement to the asset, and to any income arising from that asset.

Tenants in common each have a separate and indefeasible right to a share of the asset.  A legal agreement is entered into at the time of purchase.  Each party can trade their entitlement independently of the other parties.

Jointly held assets automatically transfer to the other asset holder on death.  For example, shares, bank accounts or property (such as the family home) held in joint names will transfer to the other party upon death, and will not form part of your Estate.

So, if your assets are mainly joint assets such as your family home and bank accounts, does this mean you do not need a Will?  No.  You should still ensure that you have a valid Will even if you think you have little in the way of net assets, or they are all jointly held.

As a simple example, let’s say a husband and wife own all assets jointly. If they were to pass away at the same time, what would happen to those jointly held assets? If they die intestate (without a Will) the courts would appoint an administrator to deal with the Estate. This would be a costly and drawn-out process and, as distributions are made according to a statutory formula, the Estate may not be distributed in accordance with their wishes.

Interest in Trusts

Assets held in trust are distributed at the Trustee’s discretion.

Powers of Attorney

Powers of Attorney determine who takes care of your affairs in the event that you become physically or mentally unable to do so yourself. This includes dealing with your affairs while you are travelling or otherwise unavailable.  A Power of Attorney gives the person you nominate the power to act on your behalf.

Each State has different requirements.  All states will allow you to put an Enduring Power Of Attorney in place, but in some states this may limit your nominee to making financial decisions on your behalf.

In Victoria, you will also require a Power of Attorney (Medical Treatment) to give your nominee the power to make medical decisions on your behalf. 

Each of these documents can give a range of powers, from enabling your Attorney to make decisions in a limited one-off situation through the unlimited decision-making.

Interaction with other Entities

Your Estate Planning should ensure that your Will and other documents interact seamlessly with the administration of other entities you are involved with. For example, if your control a family trust you should ensure that the deed allows for appropriate succession upon the death of the Trustee or Appointer.

Ongoing reviews

Once you have taken care of your basic Estate Planning needs, ensure that your documentation is kept in a safe place and that your executor knows the location of the Will, Power of Attorney forms and any binding nominations.  These documents should be reviewed on a regular basis, and when major milestones and events occur in your life, to ensure that they are still accurate and remain in accordance with your wishes.  For example:

	Is the executor still willing and able to administer your Estate?
	Are there any new beneficiaries that you wish to include?
	Have you acquired any new assets that are not covered by your Will?

Published : April 2010