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Estate planning is essential to ensure your retirement savings are passed on to your loved ones

Mother and daughter - ensure your retirement savings goes to your loved ones

Estate planning is more than simply writing your Will. It often involves a suite of documents, including Wills, Enduring Powers of Attorney, Health Directives and superannuation nominations. Proper estate planning takes into consideration your family situation, asset structure and not only how best to pass on your wealth on death, but how to protect and manage your affairs in the event of incapacity. Wills & Estates Partner, Angela Harry, discusses why it is important to enlist a professional to ensure your estate planning is done correctly.

 

 

What is estate planning and who should be involved to help with the process?

Estate planning is the process of arranging the management, and disposal of, a person’s estate during their life and upon their death. It ensures the individual’s assets are looked after in the event they lose capacity, or upon their death, and that the person’s estate will end up with their intended beneficiaries.

Estate planning is often looked at in the context of asset protection and tax planning. There is a lot more involved than simply writing a Will, including:

  • Enduring Powers of Attorneys;
  • Superannuation nominations
  • Reviewing trusts and company structures.

A lawyer, accountant and financial planner will usually be involved in the process.

When is a good time to start estate planning with a lawyer?

Everyone over the age of 18 should be looking at their estate planning. A survey conducted by finder.com.au revealed approximately 10 million Australians have not prepared the vital legal documents they should have.

There are mixed attitudes as to whether people feel they need to worry about planning their estate. Many people feel they don’t own enough assets to justify going through the process, others simply do not want to worry about these matters in the first place or feel by doing so they are ‘tempting fate’.

There are a multitude of reasons why it is important to look at completing your estate planning documents. These include:

  • Having a Will to ensure your assets end up with your intended beneficiaries, rather than passing under a statutory formula
  • Having an Enduring Power of Attorney to ensure if you lose capacity you decide who manages your affairs and potentially avoiding the risk of a government body stepping in and making those decisions on your behalf
  • Identifying who you want to benefit from your superannuation and completing nominations, so the right people receive your member benefits and you avoid costly disputes.

Estate planning is often something that is considered only for those in the later years of life, however the reality is that no one can predict what the future holds and it is important for people of all ages to have the appropriate documentation in place.

For instance, having an Enduring Power of Attorney can be particularly important for younger people. People of all ages can have unexpected accidents and injuries and they may not be prepared for someone to act on their behalf. Ensuring you nominate the right person for this role is critical as they will essentially be stepping into your shoes and have complete control of your life. The attorney can make financial and health decisions which are far-reaching, including accessing your bank accounts, buying and selling property and deciding where you live.

Read more: Appointing Guardians and Attorneys – what can happen if you make the wrong choice

Superannuation nominations are also frequently overlooked, particularly by the younger generation, with this being an area growing in disputes.

Many young people make comments that they don’t have enough in their member balance to worry. However, often overlooked is the substantial life insurance policies that may be attached to the member’s account.

We are seeing more and more disputes between parents of a younger person and a person who is claiming to be that person’s defacto partner over who is entitled to claim on the deceased’s superannuation benefits. It is critical for everyone, despite their age, to have these documents in place and have their wishes clearly outlined.

What are some other areas looked at in estate planning?

One of the key considerations when formulating an estate plan is the person’s family situation. It is important to identify if there is a blended family, if there are any protective issues, such as a child involved in a relationship breakdown, if there is a child with an addiction, or if a child has a special need or disability to consider. There are ways you can structure your estate planning documents to ensure you pass your wealth to those that you intend via the most effective structure.

Another key consideration is the assets and liabilities of the person, including who owns what, and how. In the estate planning process, a solicitor will review what you own, whether assets are wholly owned or in joint names, and what non-estate assets exist. Non-estate assets can include superannuation, joint assets and trusts.

Can a simple Will deal with superannuation and trusts?

There really is no such thing as a “simple” Will, and therefore no – a simple Will cannot gift superannuation and trusts. Part of dealing with non-estate assets is looking at who controls those assets and what mechanism can be put in place to pass the control of that asset to another person.

For example, you cannot give trust assets in your Will. What you can do is give the shares in the trustee company that controls the trust and pass on the powers of the appointor (assuming the terms of the trust deed allow this).

What a solicitor will do through this process is review the trust deed, look at the company constitution, directorship and shareholdings to see who owns and controls what.

A solicitor can then determine if this is something that should be put in the Will or if other documents, like Deeds of Succession, should be put in place.

Superannuation is also something which cannot be left to someone in a Will. Superannuation needs to be dealt with by completing a nomination with the super fund identifying who you want to benefit.

All these factors need to be considered and structured correctly.

How should superannuation be dealt with in your estate planning?

The first thing to look at and identify is who can receive superannuation benefits. Most people don’t realise that there are restrictions on who can benefit from your superannuation.

In order to be named as a beneficiary on a superannuation nomination, under the superannuation law the person(s) mentioned in the nomination must either be:

  • The legal personal representative – in this context is defined to mean the Executor of the Will or administrator of the estate of a deceased person
  • A spouse – spouse is given a wide definition that includes de factor and same sex relationships, registered or otherwise
  • A child – child is also given a wide definition and includes an adopted child, a stepchild or an ex-nuptial child of the person, a child of the person’s spouse, and someone who is a child of the person within the meaning of the Family Law Act 1975
  • Any person with whom the person has an interdependency relationship – this is defined as a close personal relationship of people who live together, where one or each of them provides the other financial support and one or each of them provides the other with domestic support and personal care.

If a nomination is to a person who does not satisfy the legislative definition it will be deemed invalid and it will be up to the trustee of the superannuation fund to determine where to pay the benefits.

Factors to consider when nominating someone to receive superannuation death benefits

Once it is determined who can receive the superannuation benefits, the next step is to determine who “should” receive the benefits.

There are several factors to consider, with tax usually being the biggest factor to consider when determining where the benefit should be paid. Most people don’t realise that there can be quite a big tax bill built into superannuation if it is paid to a non-tax dependent.

What should be done in superannuation planning is to try to look at who the person wants to give the benefit, and if appropriate, sometimes filtering more of the superannuation to a tax dependent and have other non-super assets, such as money in a bank account or property, go to a non-tax dependant.

It is important to identify who is going to be taxed. This can help make the decision of which assets go to the beneficiaries a little easier. As part of this process, it is essential that the lawyer, accountant and financial advisor work together so that the appropriate succession planning and tax advice can be provided.

In addition to tax, there are other factors to consider when nominating someone to receive your superannuation benefits.

These are:

  • If a person is concerned about a Will being challenged, they may want to avoid their superannuation going into the estate. Therefore, they may nominate beneficiaries directly on their superannuation member account (although this strategy may not work in NSW as a result of the notional estate provisions)
  • If there are concerns about a beneficiary who is going to inherit, facing bankruptcy, it may be directed to the estate so a trust can be set up

Through proper estate planning, a member can tailor their nomination to suit their individual circumstances.

It is essential that accountants, financial planners and lawyers communicate with one another as part of the estate planning process, to make sure that everyone is on the same page with what the client wants and what they are trying to achieve.

What can go wrong if estate planning is not carried out properly?

Lots of things can go wrong if you do not have your estate planning completed by a professional.

Some of the more common mistakes are:

  • Home-made Wills: People attempt to give assets, such as superannuation, as gifts in their Will. If that person hasn’t dealt with superannuation nominations correctly, this will not be valid.
  • Enduring Powers of Attorney: If these documents are not done correctly, it can have disastrous consequences and you may not end up having who you intended in control of your affairs.
  • Gifts: These may not be drafted correctly, and gifts may not end up where you intended them to.
  • Disputes: Arguments over the estate can be costly and may cause the estate to not be distributed as the deceased wished.

Read more: Binding Death Benefit Nominations and Self-Managed Super Funds

How can Attwood Marshall Lawyers help?

Accountants, financial planners and other professionals must exercise due diligence when tasked with the service of providing estate planning. They should work together to ensure the client’s wishes are correctly planned for. Attwood Marshall Lawyers is a leading Estate Planning law firm, with one of the largest and most experienced teams in South East Queensland.

For a complimentary 20-minute estate planning review please call anytime on 1800 621 071. Contact Wills and Estates Department Manager, Donna Tolley, directly on 07 5506 8241, mobile 0423 772 555 or email dtolley@attwoodmarshall.com.au

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Angela Harry

Angela Harry

  • Partner
  • Wills and Estates
  • Direct line: 07 5506 8211
  • Mobile: 0423 773 686