Estate planning: the essentials

Key takeaways

• A will, the bones to any successful estate plan, sets out your wishes as to what happens to your assets when you’re gone

• A legal instrument called a power of attorney can help ensure that someone with your best interests at heart can make decisions on your behalf

• Testamentary trusts enable your wealth to remain in your bloodline and pass in a manner that protects beneficiaries who may be vulnerable due to marriage or a relationship breakdown.

Many of us, naturally, put off thinking about our own mortality. But estate planning – legally laying out what happens to your assets after you’ve gone – can free you up to get on with life. Because you’ve done what you can to look after those you care about.

Estate planning: a valid will

One of the simplest things that people often overlook is writing a will. This document is the bones to any successful estate plan and must be updated regularly to ensure any major life changes are accounted for. This can include anything from getting married or having children, to selling the family home.

A will also sets out your wishes as to what happens to your assets when you’re gone. So if you have assets – and people you care about – you should have a will.

A solicitor can help you draft a will. It’s cheaper to do it yourself via a will kit, but as the NSW Trustee and Guardian¹ points out below, poor drafting of a will can tie up your estate in legal complexities and disputes. That can cause real pain and suffering for your family.
 

Estate planning: super

You may be surprised to learn that your super can’t be ‘managed’ by your will, or at least by your will alone. That’s because it’s held in trust in your superannuation fund and in legal terms, it’s your super fund trustee who decides how it’s disposed of upon your death.

However, you can help ensure that it goes to the people you want to give it to by creating a Binding Death Benefit Nomination through your super fund and so directing your super fund to pay your super to a specific person, or into your estate on your death. At that point, your will can determine how your super is disposed of.

As you can see, this is a more complex area than many people expect – so talk to your accountant, a financial adviser, and your super fund.

Estate planning: powers of Attorney

According to the Australian Bureau of Statistics² 12.6% of people who live to 85 or over have Dementia/Alzheimer’s as their main long-term health condition.

That’s a reminder that for many of us there will come a time when we have difficulty making decisions about our own health or finances. A legal instrument called a power of attorney can help ensure that someone with your best interests at heart can make those decisions on your behalf.

There are different types of powers of attorney and they vary by jurisdiction within Australia. These are challenging ideas to contemplate but having the appropriate legal structures in place can provide peace of mind.  

Powers of attorney can also ensure that someone who cares about you has the legal right to make important (sometime life-saving) medical decisions on your behalf.

Estate planning: testamentary trusts

Some people choose to pass their wealth to their intended beneficiaries via a testamentary trust rather than leave all their assets directly to them.

One of the main benefits of testamentary trusts is they enable your wealth to remain in your bloodline. They also enable wealth to pass in a manner that protects beneficiaries who may be vulnerable due to marriage or a relationship breakdown, or due to their profession or a business they operate.

In other cases, testamentary trusts can simply preserve wealth by ensuring it’s not misspent by beneficiaries on poor lifestyle choices or investment decisions.

These trusts, which are written into the will when planning your estate affairs can have significant tax benefits too. For example, if a beneficiary receives their inheritance under their personal name, they may be liable to pay additional tax on investment earnings or capital gains at their personal marginal tax rate. However, if they take the inheritance through a testamentary trust, particularly where the beneficiary has a high personal marginal tax rate, they may not be liable for as much tax.

Bottom line: don’t leave a mess behind

Wills, super and Powers of Attorney are just some elements of a good estate plan. You might need a family trust to ‘own’ and control some of your assets. These vehicles can have tax and asset protection benefits.

The bottom line though is that once you have a reasonable level of assets, you should start thinking about your estate planning.

Thinking about your own death or disability may not be fun. But ensuring your loved ones are cared for and your assets are disposed of in accordance with your wishes – is something you should do now. Calmly, rationally, in consultation with your family and with the help of a financial adviser, accountant and solicitor.

The alternative – leaving these big decisions to your family who may be unfamiliar with the law and dealing with grief – is something you wouldn’t want to leave to anyone. 

Seek help from a professional

If you value the experience of experts in other aspects of your life, don’t discount it when it comes to managing your life savings.

A financial coach is not just someone who helps with investments. Their job is to help you with every aspect of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

• What age can I stop working and retire?

• What strategies can I use to build my wealth?

• How can I ensure my wealth is transferred to my children?

If your to-do list is endless and you never quite have time to tackle your personal finances, a financial adviser may help to set you on the right track.

Start the conversation to see how we can help you, call us on (03) 9436 6999.

1 DIY will kits – buyers beware. Angela Teng, 3 November 2020, https://www.tag.nsw.gov.au/news/diy-will-kits-buyers-beware accessed 8 March 2021.

2 Disability, Ageing and Carers, Australia: Summary of Findings. Australian Bureau of Statistics 24 October 2019 https://www.abs.gov.au/statistics/health/disability/disability-ageing-and-carers-australia-summary-findings/latest-release, accessed 8 March 2021.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2022 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.