Planning your estate is more than just preparing a Will
Preparing a Will is an excellent step towards planning your estate. However, even those with simple family structures and modest assets should consider strategies to ensure their estate planning deals not only with how their assets are distributed after death but how their legal, financial and health affairs are managed if they are incapacitated.
Good estate planning requires:
- Preparing for the inevitable – having a valid Will to appoint an executor / trustee and to determine who receives your assets when you die.
- Planning for the unforeseen – ensuring powers of attorney and appointments of enduring guardian are in place so your legal, financial and health affairs can be dealt with appropriately if you become ill or incapacitated.
- Ensuring your estate maintains value – distributing assets in the most tax-effective manner tailored to your specific circumstances.
- Protecting vulnerable beneficiaries – creating trusts to safeguard assets from third party creditors and to protect beneficiaries who are at-risk of managing their inheritance whether through incapacity, disability or dependency.
- Succession planning – ensuring arrangements are in place for business and company interests, whether those interests are to be wound up or handed down through generations.
- Minimising the potential for estate claims – understanding family provision and implementing strategies to limit claims.
Choosing your executors
The role of an executor includes identifying and protecting estate assets, collecting debts, claiming under any available insurance policies, obtaining probate if necessary, and distributing assets according to the Will.
If the Will is disputed or a family provision claim made against the estate, your executor will need to deal with these issues and should do so under the guidance of a lawyer.
Your executor will be your personal legal representative and should be chosen with care. The executor should be somebody you trust and who is willing and able to accept the role. For simple estates, a spouse or adult child / children (or combination) are usually appropriate choices to oversee the administration and finalisation of the estate, under the guidance of a lawyer.
For more complex estates with business interests or that will have ongoing trusts, it may be preferable to appoint a professional with expertise in this area.
Asset protection – testamentary trusts
Asset protection involves the structure of affairs to eliminate or reduce financial loss and to safeguard property. When planning your estate, you can take steps to help protect assets for future generations and ensure your estate is left only to those you intend to benefit.
Holding assets in trust can help protect them from claims by third party creditors in the event of bankruptcy, insolvency, court or family law proceedings, and protect vulnerable beneficiaries such as minors and those with intellectual disabilities or drug dependency.
A testamentary trust is a discretionary trust contained in a Will that comes into effect when the testator dies. A trustee is pre-appointed in the Will to manage the trust and may choose how and when the deceased’s assets are distributed. The flexibility and control in distributing assets can also provide more favourable taxation outcomes for beneficiaries.
Making the most of your superannuation
Death benefits of a superannuation account are paid to an eligible ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).
Consideration of the way death benefits are taxed in the hands of the recipient, is important to ensure the most tax-effective results are achieved.
Essentially, a spouse or partner is considered a tax-dependant under taxation law and currently may receive death benefits tax free. Alternatively, whilst adult children are considered dependants under superannuation legislation, they are not ‘tax-dependants’ under taxation law, and any death benefits paid will likely be taxed.
Preparing a valid BDBN can ensure that your superannuation benefits are paid to your intended beneficiaries and assist in the most favourable tax treatment of those benefits.
What happens if you die without a Will?
Dying without a Will is referred to as dying intestate. In such cases the deceased person’s assets are distributed according to a statutory formula which sets out a specific order of distribution to the next of kin. This method is designed to reflect society’s expectations however does not necessarily reflect the real wishes of the deceased and can result in undesired consequences such as:
- family members or friends missing out from an inheritance;
- a disproportionate distribution of assets between family members to the detriment of more needy beneficiaries;
- a distribution to a family member with whom the deceased shared no significant or meaningful relationship.
An application to the Court is made by an interested person when a person dies intestate. A grant of Letters of Administration appoints the applicant as administrator, allowing him or her to deal with the estate assets and liabilities in the same manner as an executor after a grant of Probate is made.
Family provision claims
A family provision claim may be made by an eligible person seeking a share or greater share from an estate. Eligible persons usually include a spouse, former spouse, de facto partner, child of the deceased, or certain individuals who were in a close personal relationship with the deceased or dependent on the deceased at the time of his or her death.
Strict timeframes apply for making such claims and the applicant must prove that the deceased failed to make adequate provision for his or her proper maintenance, education and advancement in life.
Many family provision claims are justified and may be made due to errors or omissions in a Will or misunderstandings. Other claims may be fiercely contended causing grief and anxiety to the deceased’s family.
An executor may need to defend a family provision claim and will have a primary duty to uphold the provisions of a Will, however, must also ensure that estate assets are not depleted.
Family provision claims and estate disputes can be complex and contentious. Although most settle out of Court, early legal guidance is important.
We have experienced lawyers on our team who specialise in estate and succession planning and family provision claims. Please contact us to discuss how we can best assist you in planning for the future.