Having the right estate plan in place can bring peace of mind and negate the risk of conflict about your finances when you are no longer around.
Your will, any life insurance proceeds and superannuation death benefit nominations may all feature in your estate planning.
Read on and get clued up on what needs to be included in any good estate planning checklist.
What is estate planning?
Making a plan to set out what will happen to your assets upon your death is crucial. This process is known as estate planning.
Estate planning involves developing a strategy to deal with your assets and investments when you pass away. Its aim is to provide peace of mind for you and your loved ones when you die, ensuring that your assets are passed on to your beneficiaries in the most simple and effective way.
One of the key tasks of estate planning is preparing a will. Your will provides instructions on how your estate is to be distributed amongst your nominated beneficiaries, but it's far from the only aspect you need to consider.
More wills during the pandemic
There was a 33% uptick in people taking one a will during the pandemic. Yet a 2022 survey revealed that 60% of Australians don't have a will. Aussie women were the least likely to have their affairs in order with less than 1 in 3 (31%) with a will, compared to half of men (50%).
How do I start estate planning?
Broadly, the estate planning process can be broken down into the following steps:
Take stock of your assets. Create a list of all your personal assets, as well as other assets that form part of your estate (trusts, superannuation, life insurance etc.).
Identify risks. Identify any potential risks you want to plan around before and after your death, such as divorce, mental incapacity or your early death.
Creating a plan. You can now work with a financial planner to work out an estate plan that is tailored to your needs and incorporates all your assets.
For help developing a comprehensive estate plan that covers all necessary issues, it’s generally recommended that you seek independent legal advice.
Create a will with a lawyer or online legal service
Your checklist for what to review when estate planning
This is an obvious inclusion in estate planning and is usually where most people start. You need to prepare a detailed list of all the physical items that you own that can be deemed as assets. Obvious inclusions are a house, any other property that you own, cars and vehicles, as well as expensive art. However, experts suggest that you should make a list of any physical item that is greater than $100 in value. Hence, you should also list other items such as your laptops and computers, electronic devices such as televisions, home theatre systems etc, as well as an itemised list of all the jewellery that you own.
Once you have listed all your physical assets, you should move on to creating a list of non-physical assets. This includes all bank accounts that you may have; personal as well as business related. If you own shares in any company, then those should be listed too. Along with listing the necessary items, do remember to list the names of the respective banks and companies too, as well as all your detailed account information.
Another vital aspect of estate planning is a review of all your retirement solutions. This includes pensions, superannuation funds, annuities, as well as insurance policies. You need to review each of these in turn to ensure that everything is up to date and all contributions and premiums are being paid properly. You should also check the nominations in each case to ensure that the right people are nominated to receive the benefits upon your death.
Planning an estate is not just about going through your assets and dividing them between your heirs. You also need to make a list of all your liabilities so that they can be dealt with in the right manner from your estate income. Liabilities include any loans that may be pending such as a home loan, car loans, business loans etc. You should also make a list of all your credit cards along with the balances due on all of them. Once you have listed all your liabilities, you need to specify how you want them to be paid off in the event of your death.
Once you have made a list of all your assets and liabilities, you should get a formal will prepared. The distribution of your assets after paying off your liabilities should be clearly mentioned in the will. If you have any special bequests, you can include these in your will too.
This is another vital aspect of estate planning. Since you will not be around to see your Will being carried out, it is necessary to appoint a person as executor of your will. This person will ensure that all your wishes are carried out as per your will. When appointing an executor, you need to choose a person who is responsible and who is extremely trustworthy. It is best to choose someone who is not a beneficiary under the terms of your will.
If you have a particularly large estate, you may want to think about setting up a trust to manage your estate. This can often be the smarter thing to do than creating a will as there is no probate to contend with. You can choose to manage the trust on your own till you are alive, or you can appoint a trustee who manages the trust as per your wishes, upon your death.
Many people nowadays choose to create a document known as an Advanced Medical Directive when planning their estates. This document is a list of medical directions that you want carried out should you become incapable of taking such decisions on your own.
This is another type of legal document that helps in estate planning. A Power Of Attorney is basically a document that gives another person the power to manage your affairs in your absence or if you are medically unfit to do so.
One of the most essential parts of estate planning is proper documentation. Once you have prepared all the lists and documents as mentioned above, you need to sign them properly in the presence of witnesses and then send the documents to your executor or administrator for safekeeping. You should also keep one copy of all the documents with yourself and another copy with your lawyers if possible. In the event of your death, these documents will be used to carry out your wishes for your estate.
A person's estate is forever changing till they are alive and working, and so is their family. Therefore, you should review all your estate planning documents every few years and update them as and when required. For instance, if a new child has been welcomed into the family, you may want to include that child as a beneficiary under your estate. Hence, by updating the important documents every few years, you can make sure that the plans for your estate always reflect your wishes.
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Turnbull Hill Lawyers
Work with an experienced lawyer to prepare your will. Available in Sydney, Newcastle, and the Hunter and Central Coast regions.
The tax obligations faced by your beneficiaries vary depending on the assets they receive:
Capital Gains Tax (CGT) is only charged on the disposal of an asset, so CGT will not apply to a beneficiary who receives an asset. However, they’ll be liable for CGT if they choose to sell that asset.
The tax on superannuation death benefits varies depending on a range of factors, such as whether the recipient is your dependent, and whether the benefits are paid as a lump sum or an income stream.
If a beneficiary is entitled to the income of a deceased estate, that income is assessable for tax.
For more information on how your assets will be taxed, speak to your accountant or financial planner.
Insurance: Things to check
If you have insurance, you should check on a few things.
Your beneficiary
If you have a super fund there is usually insurance included. Just like your super death benefit mentioned above, if you don't nominate who the money goes to, the super trustee will decide.
If you hold a life insurance policy outside super that pays a lump sum on your death, the proceeds from the policy will go to your nominated beneficiaries.
The type of cover you have
Life insurance doesn't just cover death. There's also:
'Trauma cover' that pays out if go through a major health scare e.g. heart attack,
'TPD cover' that pays out if you become disabled and can't work again,
And 'income protection' which can keep your income going in case an illness or injury puts you out of work temporarily.
Make sure you check your life stage so see if the type of cover you have is right for you:
Speak with an expert broker about your life insurance needs
Frequently asked questions
Estate planning is the process that underpins what you'd like to happen to your assets and other affairs when you die.
When you create your will, you'll be required to nominate your executor. The executor's role is to carry out your wishes as specified in your will, and they have the power to administer the estate.
Depending on your personal circumstances, others may also be involved. For example, if you establish a testamentary trust in your will, you will also appoint a trustee whose job is to administer that trust.
As a general rule, superannuation is an asset excluded from your will. Most super funds allow you to nominate who you want to receive your super death benefit when you die. You can:
Make a binding nomination. Your super fund trustee must pay your death benefit to the person or people you nominate.
Make a non-binding nomination. This provides guidance on who you want the benefit to be distributed to, but the trustee gets the final say on where the money goes.
If you don't nominate anyone
The super trustee decides who your money will be distributed to.
A will is a core component of an estate plan. In addition to having a will, there are a number of other things that make up an estate plan, such as where any life insurance proceeds and superannuation death benefits will go after you pass away.
There are several important benefits of estate planning, including:
Peace of mind. The biggest benefit of estate planning is the peace of mind it provides, ensuring that your hard-earned assets will be distributed according to your wishes.
Financial support for the people you care about. By developing a comprehensive estate plan, you can guarantee that your assets go to the right people.
Eliminates disputes. A clear will and a good estate plan will help your loved ones avoid arguments, disputes and even messy legal battles about the fair distribution of your assets.
Tax-effective. With help from legal and financial professionals, you can distribute your assets in a way that minimises the tax obligations your heirs will face.
More than just money. Estate planning is about much more than just dividing up your finances; it also allows you to ensure that you receive the medical care you want, that your children are properly cared for if you die unexpectedly, and even that you're given the funeral you want.
While estate planning might seem like a morbid and gloomy task, don't put it off. If you think about it and take action now, you can save your loved ones plenty of stress and heartache in the future.
Although some people think that you have to have a lawyer to make your will, this is not the case. In fact, you do not even need to have special stationery or anything to write one.
There are, of course, a few legalities that you have to adhere to in order to ensure that the will is valid. This includes making sure you sign the will, having two witnesses who are not beneficiaries witness your signature and signing the will, and making sure that your will is in written form, whether it is handwritten or typed.
If you do not make a will and you pass away, you leave an intestacy. This basically means that you have failed to arrange the valid disposal/distribution of some or all of your assets. If this happens, your assets and estate will have to be distributed according to law, which means that you lose any control over who gets what.
Those who you wanted as beneficiaries could end up with nothing and those who you did not want as beneficiaries could end up with everything.
You also lose the ability to make your wishes known in other important matters such as who should be executor of your estate or what your wishes are with regards to your funeral.
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio
James's expertise
James has written 233 Finder guides across topics including:
Richard Laycock is Finder’s insights editor after spending the last five years writing and editing articles about insurance. His musings can be found across the web including on MoneyMag, Yahoo Finance and Travel Weekly. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 Certification in General Advice for Life Insurance. See full bio
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