Estate Planning – Guide to Estate Planning in Australia

How to make sure all your personal, financial and business affairs are taken care of when you pass away.

When you’re busy living life, facing up to your own mortality is probably the last thing you feel like doing. While it might be an awkward or even painful topic to think about and discuss, making a plan to set out what will happen to your assets upon your death is crucial. This process is known as estate planning.

creating will - estate planning

What is 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.

What can estate planning handle

A thorough estate plan will also deal with a range of other matters, including:

  • Making a will (this is an official document that records the distribution of assets)
  • Superannuation death nominations (who gets your super benefits when you die)
  • The creation of testamentary trusts to distribute assets to your beneficiaries
  • Powers of attorney (appointing someone else to conduct your affairs if you are unable to do so)
  • Power of guardianship (giving someone else the power to make personal and lifestyle decisions for you if you lose your mental capacity)
  • Anticipatory direction or advance health directive (instructions on your wishes regarding medical treatment if you’re unable to communicate)

Enquire about life insurance 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 dependant, and whether the benefits are paid as a lump sum or an income stream.
  • If a beneficiary is entitled to 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.

If you don't nominate anyone

The super trustee decides who your money will be distributed to.

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:

Life Insurance States Graph

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

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 a plenty of stress and heartache in the future.

Read out checklist for what to review when estate planning

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

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