Planning for when you’re no longer around

What arrangements do you have in place if you pass away? While most of us like to imagine we’ll live to a ripe old age, life doesn’t always turn out the way we hope.

Getting prepared now is in your best interests and in the interests of those you care about. Remember, planning your estate and having a will isn’t just for older people. As confronting as this conversation may be, speaking with your adviser about protecting your assets for future generations is smart planning for the future.

Passing away without your financial affairs in order can make the trauma of losing a loved one even more difficult for your family and friends – and subject them to unnecessary financial hardship and emotional stress.

If you die without a will, your estate may be distributed according to a Government formula and, if you have no surviving relations closer than cousins, your estate passes to the Government.

So if you have children under 18, consider who you’d like to care for them if something were to happen to you and nominate one or more people in your will as your children’s guardian. While making your intentions clear may help avoid family disputes, keep in mind this is not binding, and the Family Court has overriding discretion to appoint a guardian if it considers it in the child’s best interests.

Where beneficiaries of your will are minors or otherwise not able to manage an inheritance, you might consider a testamentary trust created through your will, to hold assets on their behalf and have income distributed at a trustee’s discretion.

A qualified financial adviser can also explain the ways of transferring assets or establishing trusts to minimise tax liabilities for beneficiaries.

It’s important to consider tax implications. For example, one asset left for one child may be subject to capital gains tax, whereas another left for another of your children may be exempt, resulting in unanticipated different final amounts for each child.

Your adviser can provide advice on the implications of taxation on these strategies, including how any superannuation you have would be taxed when passing to your beneficiaries.

You should also keep in mind that some assets may not be covered by your will – such as superannuation under a binding death nomination or life insurance where you’ve nominated a beneficiary. So it’s important to consider how all your assets are arranged and make sure any superannuation or life insurance beneficiary nominations are kept up to date.

Not all super funds offer binding death nominations so if it’s just a death benefit nomination, payment is at the super fund trustee’s discretion, with benefits only able to be paid to your estate or to ‘dependants’ as defined under super law.

The law requires superannuation binding death nominations to be updated every three years. Remember that if you were in a relationship with one person and they’re still your binding death nominee, even though you’d since broken up with them, your money could end up in the hands of someone you’d rather not.

Another aspect of planning your affairs is appointing someone to make decisions on your behalf if you’re not able to. While power of attorney is only valid while you’re mentally capable of making decisions, an enduring power of attorney operates even if you subsequently lose mental capacity to manage your financial affairs.

You could start taking control, by asking yourself:

• Do I have a will that’s valid and up-to-date?
• How will my superannuation and life insurance be distributed?
• Who will look after my children?
• Have tax considerations been addressed?
• What about enduring power of attorney?
You should consult your financial adviser to work through these issues and remember to;
• Review your will regularly – particularly if you marry or divorce, have a baby, a close relative dies, or there are considerable changes to your assets.
• If you’ve made a specific beneficiary nomination on your superannuation or life insurance, make sure you keep these up-to-date.

Download your issue of The Key Spring 2012

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