Estate Planning – Guide to Estate Planning in Australia

Estate Planning in Australia - The Importance of Estate Planning to Protect Your Family and Your Assets

Estate planning allows you to nominate what happens to your possessions once you’re gone. Estate planning does more than tell people who you want to inherit your grandfather clock. Estate planning protects more than just your assets – it protects your family and loved ones, who may need access to your investments to continue to cover their living expenses, and also makes the process of managing your estate after your death as easy as possible, so as not to add to the already heavy emotional burden.

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What is Estate Planning?

Estate planning allows you to prepare to pass on your assets and belongings to your beneficiaries in the event of your death or mental incapacitation. By putting these plans in place before your death, and while you are young and fit, you are aiming to avoid any uncertainties over the administration of probate, while also minimising any taxes and other expenses your beneficiaries would have to pay from the value of your estate.

If the beneficiaries you nominate are minors or are incapacitated themselves, a guardian is often appointed. To make sure that all of your wishes are recorded, and that your assets are properly distributed when you die or become unable to make financial decisions, estate planning is typically carried out with the help of a financial adviser and a lawyer and includes:

  • Naming your beneficiaries - You're able to name all of the people you want to receive your assets, and the wishes in your estate plan are legally binding.
  • A minimisation of taxes. - Your estate plan can be structured so that as little as possible of your estate is lost to taxes.
  • Putting all of your affairs in order - Estate planning gives you the peace of mind that you have recorded all of your wishes and laid plans for those wishes to be carried out, and this ensures that your family don’t have to deal with expensive administration processes.
  • A will - Part of your estate plan includes you writing or updating your will to include your current beneficiaries, assets and wishes.
  • Power of attorney - You also need to assign power of attorney, giving the person you name the authority to manage your financial affairs when you become unable to do so yourself.
  • A living will - A living will details your wishes for the types of life sustaining medical intervention you want or don’t want, so that your wishes can be carried out if you are terminally ill or unable to communicate.
  • A healthcare proxy - This authorises the person named to make medical decisions on your behalf.
  • A trust - Depending on your situation and your assets, a trust may also be included in your estate plan.
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Estate Planning Australia

Since we can never know what the future holds, there are a number of ways you can set up your estate plan and a number of eventualities you can be plan for. For example, estate planning includes:

Planning for medical incapacity

Advance medical directive

Financial power of attorney

Planning for death

Revocable living trust

Charitable remainder trust

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Benefits of Wills and Estate Planning

  • Reduce probate fees and taxes. Your main goal when organising your estate plan is to ensure that the largest possible portion of your estate goes to your beneficiaries in the fastest and easiest way possible. Therefore, with the right estate planning, you can set up a contingency that helps the executor of your estate carry out your wishes quickly and easily. This reduces the involvement with the probate court and all of the associated costs.
  • Leaving assets to your spouse. In most cases you can leave an unlimited amount of money to your spouse, without attracting any taxes. The remainder of your estate only owe taxes if the value of all real estate, life insurance proceeds retirement accounts and other investments is over the estate tax exemption threshold. Only the amount over the exemption threshold is taxed.
  • Gifting assets. You can also reduce your estate taxes by gifting assets to your beneficiaries, to a charity or into a trust, as this reduces the value of your estate, as the gifted assets are not included in the value of your estate for tax purposes.
  • Create a legacy. Even though you may think you don’t care what happens after you die, when you really look at it, you realise that you want to be remembered in a good light, as someone who made a positive difference, and took care of their loved ones. This is why you can also use your estate plan to create a legacy to leave behind something meaningful when you die. In some cases you may be able to create a dynasty trust which continues for hundreds of years, or even in perpetuity, to provide for current and future family. Or you may choose to create a legacy in your community as part of your estate planning, and set up a charitable trust or private foundation to provide a self perpetuating endowment into the future.
  • Protection against lawsuits and divorce. You can set up an advanced trust which protects the assets owned by the trust against lawsuits and divorce decrees.
  • You can benefit even if you’re not rich. You may think that because you don’t have a wealth of assets and investments to leave behind to your family, that you don’t need to bother with estate planning, but this is not the case. Estate planning can benefit anyone of any asset level, because the primary benefit is to reduce taxes, litigation and other unnecessary expenses and processes, at an already difficult time. Without an estate plan, the state will decide for you how your assets are distributed, without taking into account any of your wishes, family situations or current circumstances.
  • Avoid probate. The process of probate settles your debts upon your death, pay any taxes owned by the estate and resolve any disputes with heirs of the estate. While this may sound like a valuable process, your estate will be charged for the services carried out during probate, which can further diminish the assets your family finally receive. However, with the correct, detailed estate planning, all the issues with probate can be avoided.
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Estate Planning Strategies

No matter how far away you think death may or may not be, it is never too early to start the estate planning process:

  • Review your assets. The first step to estate planning is looking at what your estate is comprised of, and this includes everything from your investments, retirement accounts, insurance policies, real estate and business interests, to items with financial or emotional value such as jewellery, vehicles, collections or Grandma’s silverware.
  • Know where you want your assets to go. Work out what you want to achieve with your estate planning, and where you want all of your assets to be distributed. Think about who you want to bequeath each asset to and why, and make note of this. Also take the time to discuss your estate plans with your family and friends, because the sooner you make your intentions clear, the less chance there will be of disagreements after you’ve gone.

Next you need to look at the people who will help you compile and carry out your estate plan, and so you will need to choose:

  • The people you trust. When you are choosing people to execute your estate plan you need to look for people you trust to handle your business affairs and medical care. You need to choose people you know will follow your wishes, regardless of their own personal opinions, and as a result it can often be beneficial to choose people who are slightly removed from you – for example, not your spouse – as they can have trouble letting go and being impartial, and the chances are also greater that they will pass away at or around the same time as you do.
  • Trustee. This is the person who holds the legal title to a property, trust or estate, and manages the assets within. You can be the trustee or co-trustee of your estate, but also need to name another person who can carries out the management of your estate when you are no longer able to.
  • Executor. This is the person you name in your will to carry out the instructions in your will.
  • Administrator. If you were to die without a will, an administrator would be appointed by the probate court to manage your estate.
  • Beneficiary. Also known as a guarantee, or heir, this is the person or the legal entity who has an interest in the assets of your estate, and who you bequeath your estate to.

It is important when you carry out your estate planning to include all of your wishes in detail, and complete all of the necessary documentation correctly, because once you’re gone, you want to ensure your loved ones remember how much you cared for them, and continue to feel that care through what you’ve left behind.

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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