Estate planning is a topic that many people prefer to avoid. As a culture, we generally do not like to discuss the issue openly or proactively.
You spend a lot of time in your life working to accumulate assets. You may even be fortunate enough to inherit wealth. It makes sense then to spend some time on your estate planning, to determine how you would like your assets distributed when you die.
Estate planning can be a very emotive topic. When you combine money, love, relationships and family dynamics into one conversation about your estate plan, things may become a little emotional. Add blended families to the mix and it can become even more complicated.
So where do you start?
Your Financial Services Partners Adviser can help you start planning so that your estate plan is in line with your wishes. Since your adviser is independent from your family, they will put your needs first and help you make sure that your estate plans are in order.
Your estate plan should start with a will
A will is a legal document that names the people ('beneficiaries') who you want to receive your assets (e.g. property) and other possessions and investments you own after your death. It helps you express your wishes in writing. Without a will, your loved ones could face uncertainty and legal complications.
Wills are not just for older people either. Without a valid will, the Government can determine how your assets are distributed, taking into account your family situation. They may also tax your estate and decide who looks after your children if they are under 18. This could be a very different outcome to what you had in mind. It can also cause delays in settling your estate.
Making a will provides peace of mind for you and your dependants.
Not all of your assets are covered by your will
It surprises many people to learn that you cannot always use a will to express who will receive certain assets, such as your superannuation and life insurance. So nominating your beneficiary on these policies is just as important as having a will.
If you own a life insurance policy, proceeds can go into your estate or be apportioned to nominated beneficiaries. You and your loved ones should also review whether you have adequate insurance cover before it is too late.
Superannuation death benefits can only be paid to your estate or to 'dependants', as defined under superannuation law. In many cases, members' death benefit nominations are not binding on a super fund trustee. While your nomination will be taken into account, payment is at the trustee's discretion – unless it is a binding death benefit nomination as offered by some super funds. While binding nominations are binding on the trustee, they generally have to be renewed every three years.
The idea of having a trustee decide who will receive your superannuation does not suit many people. In many instances, a binding death nomination is preferred. Again, your Financial Services Partners Adviser can help you understand the various decisions you face.
Ownership structures and tax matters are also important
Depending on your situation, ownership structures and tax matters can deliver different outcomes to different people. It makes sense to make sure you have the right estate plan in place for your beneficiaries.
Understanding ownership structures
Testamentary trusts can offer particular estate planning advantages. Established upon your death and created by your will, these trusts can potentially protect assets against claims arising from the divorce or bankruptcy of your children, minimise tax and allow special provision for young children. By creating trusts rather than giving money to your beneficiaries outright, you can manage how much children or grandchildren have available to spend while they are maturing and developing financial skills.
There are a variety of ways to structure ownership of your assets, such as via companies and Self Managed Super Funds. Your Financial Services Partners Adviser can help you choose a structure to suit you and your family's circumstances.
Understanding tax implications and structuring affairs to manage tax can be an important part of estate planning. An asset you leave for one child may be subject to capital gains tax, whereas another asset left for another child may be exempt, unintentionally resulting in different final amounts to each child.
Your superannuation benefits, which include death benefits from insurance through super, can be paid to dependants as a tax-free lump sum. But taxation of death benefits paid as a pension to dependants, and payments to non-dependants, can vary depending on your personal circumstances. By spending some time looking at tax issues, you can be confident of the outcomes that will occur when your estate plan is eventually implemented.
Talk to us about how estate planning advice might work for your beneficiaries