Estate Planning

What exactly 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.

Estate planning checklist

How do I start estate planning?

The estate planning process can be broken down into a few simple steps:

1. 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.).
2. 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.
3. Creating a plan. You can now work with your solicitor, accountant and 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 recommended that you seek independent legal advice. Your solicitor will be able to help you get started and provide expert advice tailored to your personal needs.

Preparing a will

A will is a critical legal document that outlines your wishes for the distribution of your assets after your death. By creating a clear and unambiguous will you can:

• Ensure that your assets are distributed to the right people
• Provide instructions on who will look after your children
• Establish trusts to distribute assets among your beneficiaries more effectively
• Donate money to charity
• Provide instructions for your funeral

If you die without a will or with an invalid will, this is known as dying intestate. When this happens, each state and territory has its own laws regarding how your assets will be distributed. Though those assets will usually be distributed to your family members, this allocation may go against your final wishes.

With this in mind, it’s essential that you create a will and update it regularly to reflect any changes to your legal rights.

Who is involved once I pass away?

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.

Are my assets taxed when passed on?

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.

What happens to my super when I die?

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.

How can a will or estate plan benefit me?

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.

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:

Make sure you check your life stage so see if the type of cover you have is right for you:

You learn more about your life insurance needs in our guide.

How do I bring up life insurance with my partner?

Before you approach your partner: How to prepare

The last thing you want to do is false-start the conversation a dozen times. Plan ahead and have the talk when you both have a good couple of hours to spare. A pre-talk checklist should include the following:

1. Work out your cover needs
2. Get an idea of how much it costs
3. Understand the options available

Working out the costs

Prices can vary between providers and checking a range of quotes can let you see how much it will generally cost. Our comparison tool lets you put in your sum insured and can then show you monthly prices from more than a dozen different providers.

Know the options available

At its core, life insurance pays benefits when an insured person dies. The other options you check with the above tool can extend your cover to pay out in other circumstances.

• Inability to work. Income protection insurance can pay monthly benefits if the insured is unable to work for an extended period.
• Serious medical events. Trauma insurance can pay a lump sum in the event of specific health issues such as cancer or a heart attack.
• Permanent disability. Total and permanent disablement (TPD) insurance can pay a lump sum in the event of permanent disability.

Agreeing on your sum insured needs

Consider both the required sum insured and the different types of cover you might want. It can be a good idea to draw up an action plan in the event of something happening to help check your sum insured in practical terms. You need to think about the following:

• Your household earnings. Talk about your household income, your investment earnings and the value of your assets. Discuss what you'll be selling if something happens and whether you'll be re-entering the workforce later. For example, you might plan to use benefits to pay off the mortgage and then move into a smaller place while renting the home as an additional income source. This would also allow you to eventually sell the house when the market is favourable.
• The age of your children. How long will you need to provide for your children? One of you might want to only account for expenses up to age 18, while another might want an additional buffer. Depending on their age, you may also need to consider the possibility of extra childcare and homemaking expenses, such as nannies, if there will no longer be a stay-at-home parent.
• Your expenses. Revise your expenses in line with anticipated changes. For example, if you'll be paying off all your credit card debt and your mortgage, then you may not need to plan for those expenses and can count on having additional assets.

Agreeing on your budget

Decide what your monthly life insurance budget is right now, and how it might change in the future. You will often able to adjust your cost by changing your cover later. For example, if the insured person is currently a smoker, but quits later, premiums may decrease considerably.

1. Decide on your current budget. This lets you compare only policies that fall within this price range.
2. Decide on your premium structure. This can have a substantial impact on your long-term costs.

What's your current budget?

It should be an amount that you both agree on and that you can keep up with. If you cancel your policy, it will typically cost more to get a new one later as premiums will be calculated in light of your increased age and any health conditions that may have developed.

Getting cover sooner is generally preferable to getting it later, even if you aren't in ideal health right now. For example, your partner might quit smoking and lose weight over the next five years and could then take a new medical test which awards lower premiums. If you can both agree on this type of plan, and stick to it, then erring on the side of more cover and higher premiums might be the way to go. It can also deliver a nice financial motivation for getting in shape, which might be the extra push that's needed.

Decide on a premium structure

An ideal life insurance policy is one you can hold for decades to come, and your premium structure can make a considerable difference over time. The two main options are stepped premiums and level premiums.

Stepped premiums increase with age and can get very expensive as decades pass. To partially counter this, you can access options like a "premium freeze" which lets you freeze your premiums in place at the cost of a decreasing sum insured. Generally, if you're after an effective long-term policy, it may be a good idea to avoid stepped premiums.

Level premiums can be preferable for long-term policies. These are fixed at the same rate as long as you maintain the policy but will cost more than stepped premiums for younger people. If you're after long-term cover, the extra initial cost of level premiums is often worth it.

• You might start with a sum insured on the lower side of your calculations or skip other cover types for the moment in order to keep costs manageable and then add them later.
• Note that your flexibility will vary between policies, and options may be limited. For example, you will generally be able to increase your sum insured with almost all policies, but may not always be able to add additional types of cover.
• The price increase you get from increasing your sum insured later will be based on the age at which you first signed up for the policy. For example, cover for a 40-year-old might cost 1.5x as much per dollar insured as cover for a 30-year-old. If you sign up at 30 and then increase your sum insured at age 40, you'll still be paying the 30-year-old prices. In this way, getting cover with level premiums sooner means you can get enormous savings later, while still getting the sum insured you need.

Read out checklist for what to review when estate planning

• Physical assets

  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.

• Non-physical assets

  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.

• Review all your retirement plans

  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.

• List your liabilities

  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.

• Make a will

  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.

• Choose an executor

  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.

• Setting up a trust

  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.

• Advanced medical directive

  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.

• Power of attorney

  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.

• Ensuring proper documentation

  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.

• Periodic updating of documents

  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.

Some questions you might have about estate planning and writing a will

• Is it important to make a will?

  Making a will is very important, particularly if you have assets and wealth, or even belongings that have sentimental value, and would like them to go to particular people. It is also important to have a will if you have particular wishes that you want people to know about after your death, such as wishes relating to your funerals, organ donation, charitable donations, your children, etc.

• Do I need a lawyer to write a will?

  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.

• Do I have to be in good health when I write my will?

  It does not matter if you are ill when you write your will. However, you do have to be of sound mind, which means that you must have the mental capacity to write your will without influence from anyone else. If you are not of sound mind then it is possible that the courts can get involved in helping you to make your will.

• Can I choose whoever I like to be my witnesses for the will?

  You need to choose two people to act as witnesses for your will, as they will need to witness you sign the will and will need to also sign whilst they are both present together. The people you choose cannot be beneficiaries or your spouse/partner. It is also advisable not to choose anyone who is closely related to a beneficiary of your estate.

• What happens if I die without making a will?

  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.

• Can I provide details of my funeral wishes in the will?

  By all means, you can detail your wishes with regards to your funeral in the will. However, bear in mind that if your will is not read until after your funeral this could be a mute point. It is always best to let your nearest and dearest know what your wishes are so that you are more likely to get the funeral you want.

• If I choose someone as guardian for my children in my will is there a chance that they will not be made guardian?

  Even if you choose someone to be appointed as guardian to your children in your will, the final say will still rest with the courts. However, if you have chosen wisely and appropriately, the courts are more likely to go with your choice.

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