Estate Planning Guide — It Pays to be a Forward Thinker

Who benefits from estate planning?

Estate planning is important for everyone, regardless of how big your bank balance is. If you own anything, have something to leave a family member after you've passed away, or have people who rely on you, it is a good idea to have an estate plan in place. In addition, given the growing number of mixed families here in Australia, and the complexity around personal and financial affairs, the necessity for estate planning is evident.

Key life stages for reviewing your estate plan

There are certain times and milestones in your life when you should review your estate plan, as your needs and circumstances may have changed. This includes:

• Getting married or living with a partner
• Getting separated or divorced
• Having children, including stepchildren
• Moving house, interstate or overseas
• Buying real estate or other valuable assets
• Relationship breakdown with other family members
• Family separation involving other family members
• A death in the family
• Buying, selling or operating a business
• Setting up a family trust or company
• If you have family members with special needs or children who are vulnerable.

What does an estate plan involve?

An effective estate plan can include several crucial documents including:

• A will
• An enduring power of attorney
• An enduring power of guardianship
• An advanced health directive
• A superannuation death benefit nomination

Will

A will is a legal document outlining your wishes for your assets and possessions upon your death. It can also be designed to encompass a range of requests including:

• Providing for children from a previous relationship
• Providing for children with special needs
• Providing for people outside your immediate family
• Guardianship of your children
• Meeting your charitable objectives

What happens if I don't have a will?

Passing away without a valid will is called "dying intestate". When this happens, the court will appoint an administrator and your assets will be distributed according to a strict government formula. This formula may not be in line with your intentions, and the outcome may not be in the best interests of your family and loved ones.

Important parties to a will

• Executor: The person/s appointed in your will to administer your estate in the event of your death.
• Beneficiaries: The person/s named in your will to receive a particular asset or assets through your estate upon your death.
• Guardian: The person/s who you have nominated to be legally responsible for caring and otherwise managing the affairs of minor children in the event of your death.

How can my assets be passed on to my loved ones?

You must consider whether or not you want your assets sold down and distributed as cash, or passed on as they are.

• Specific bequests: You may want to leave certain assets to particular people. Reasons for specific bequests can include tax benefits, family history, sentimental reasons and to ensure equality between beneficiaries.
• Estate equalisation: Do you want to make allowances to compensate for or alleviate any discrepancies to ensure equality between beneficiaries?

Considerations for your will

Children and your will

One of the most important considerations when drawing up your will is your dependants, in particular young children. Your will should detail who you want to take care of your children in the event of your death, as well as how you want them to be cared for. It should also include instructions for the appointment of a guardian who can legally act on behalf of your children, as well as specific instructions for their upbringing. This can prevent messy feuds later down the track, especially in the case of blended families and where both parents pass away at the same time.

Another consideration where minor children are involved is tax management. Children under the age of 18 can be hit with penalty tax rates up to 66% on the income earned on investments if your will is not structured correctly.

Powers of Attorney

A Power of Attorney is a legal document allowing you to appoint someone to act on your behalf. When in force, the signature of the person you appoint as your Power of Attorney has the same legal force as your own.

The laws governing a Power of Attorney vary from state to state, and there are different Powers of Attorney each with a different purpose:

• General Power of Attorney,
• Enduring Power of Attorney, and
• Enduring Guardian / Medical Power of Attorney / Advanced
• Health Directive

Superannuation

Generally, your superannuation savings do not form part of the assets that are distributed via your will. This is a crucial consideration for the succession of your wealth, because if structured correctly your super savings can be received tax free when they are passed on to your beneficiaries. Conversely, if your preferences for your super savings are not structured correctly, the tax consequences for your savings can be damaging. Superannuation savings paid to someone other than your spouse, your minor child, or someone who is financially dependent on you can be taxed up to 31.5%.

What happens to my super when I die?

The trustee of your superannuation fund has the ultimate discretion about whom to pay your superannuation savings, unless you have a binding nomination.

What is a binding nomination?

• A valid binding nomination gives you certainty about who will receive your super savings and allows you to choose who receives your benefits at the time of your death.
• It must be witnessed by two adults not identified in your nomination.
• The binding nomination can be lapsing or non-lapsing. Lapsing binding nominations expire every three years and non-lapsing never expire.

How do I get an estate plan?

While estate planning can be a complex process, it is an essential part of managing your financial affairs. It requires careful consideration on your behalf, as well as the expertise offered by a solicitor and accountant, and financial adviser.

How Gallagher can help

Wherever you are on your financial journey, from early career to retirement, we can help you plan for the future and adjust to changes when 'life' happens. With over 75% of Australians not having a valid estate plan in place, let us help you secure your wishes and protect the financial future of your loved ones. Get in touch today.

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