Why do I need to consider estate planning issues?
It is important for all of us to ensure
that the assets we have accumulated over a lifetime are left for
the benefit of those people or institutions we wish to support, and
left in the way that is most beneficial to the recipient. The only
way to ensure this is to make a valid Will, having first obtained
the appropriate advice.
What if I have already made a Will?
You may believe that your current Will
is perfectly adequate (and that may well be the case). However, it
is strongly recommended that you review your Will regularly. When
you marry or a marriage is dissolved, when a major asset is
acquired, when a business is commenced or sold, when the
circumstances of your beneficiaries change, when your personal
financial circumstances change or the financial circumstances of
your beneficiaries or, importantly, when changes are made to
existing tax laws, then a serious review of your Will should be
undertaken, even if your intentions regarding who you wish to
benefit have not changed. Marriage or divorce can revoke either
partially or in full an existing Will, hence there are some people
who believe they have a Will when they in fact do not.
What happens if I do not have a Will?
If you do not have a Will then your
assets will be distributed among your next of kin in accordance
with a formula set out by legislation, regardless of whether or not
this is in their best interests or the result accords with what you
would have wanted. If a person dies without any living relatives,
then the whole if his or her estate will at the first instance pass
to the government.
What do I need to consider when making a Will?
Some of these issues are set out under
the sub-headings below.
Appointment of
Executors
Should I appoint a family member,
family friend, professional adviser or trustee company? The answer
to this question cannot necessarily be determined without careful
consideration of the proposed gifts and the circumstances of the
intended beneficiaries. Thought must also be given to the question
of remuneration of an Executor and Trustee, especially in
circumstances where that person is not a beneficiary.
How do I best provide for my
spouse or de facto spouse?
This will depend on your family and
financial circumstances. It is important that the needs of a spouse
or de facto spouse are carefully considered and balanced against
the wish to benefit children or subsequent generations. One cannot
automatically assume that a surviving spouse will not remarry and
such an occurrence can significantly affect the rights of children
to share in an estate.
What if I have a child who is
in financial difficulties, is someone who is unable to properly
manage money or who suffers from a disability?
Much thought needs to be given to
balancing the needs of a beneficiary against the risk that a gift
will be lost or wasted. The establishment of trusts under a Will
can be an effective means of dealing with this issue. Similar
issues need to be considered if a child is in a relationship that
may be unstable.
What are the advantages of
establishing a trust within my Will?
Not only can there be important asset
protection advantages arising from establishing a trust within the
Will, but there can also be significant tax advantages to the
beneficiary. A trust established in a Will is often a simple method
of providing a significant benefit to a beneficiary, compared with
making an absolute gift to that beneficiary.
Superannuation
Many of us now have significant assets
in superannuation. You should not presume, however, that the
proceeds of any superannuation policy will be distributed in
accordance with the terms of your Will. This will only occur in the
event that you leave no dependents (usually a spouse or children,
including children who are not financially dependent on you) or if
you have made a binding nomination in favour of your estate to the
trustee of your superannuation fund. Binding nominations must be
renewed every three years to be effective and a distribution of
superannuation assets can often be overlooked by inexperienced Will
makers.
Family trusts
Assets contained in a family trust do
not form part of an estate for distribution under a Will. Careful
examination of the trust needs to be undertaken to ensure that the
Will maker's intentions can, as far as possible, be implemented in
relation to trust assets.
Who will pay my debts after I die?
Again this is an issue that requires
careful thought, especially considering the transfer of an asset
(such as a house) to which a mortgage liability is attached.
Unintended financial consequences
Thought must also be given to the
consequences when making a gift that may arise in the hands of the
beneficiary for payment of Capital Gains Tax or on a beneficiary's
entitlement to receive pensions or other entitlements.
This is only a sampling of the issues
surrounding estate planning and does not touch on the possibility
that assets may be held interstate or outside of Australia, that
there may be minors or disabled children who require the
appointment of a guardian, the wish for certain beneficiaries to
have options to acquire particular assets, the powers of Executors
and Trustees to deal with assets and many other considerations. The
importance of obtaining proper advice for making a Will cannot be
underestimated.
(Authored by Peter Window, Cornwall Stodart)