Estate Planning: why is it important, and what does it involve?

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Estate Planning: why is it important, and what does it involve?

Estate Planning can be a difficult topic to discuss. But it is absolutely essential that you have conversations about your wishes, and make the necessary tax, super, legal and business preparations – and the earlier the better! 

According to ASIC, nearly half of Australians do not have a valid Will, and most do not have a comprehensive Estate Plan. We’d like to work to change that by educating our clients and community on the processes and decisions involved, and ensure you all have a comprehensive Estate Plan.

Not in the mood to read at this information?

The topics covered in this article are also discussed in our 2021 Estate Planning Webinar, and you can watch a recording of that here.

What is Estate Planning?

Estate Planning is much more than just having a Will – although a Will is an important component.

Estate Planning more broadly involves preparing for what you want to happen to your assets and affairs when you pass away. It is also about having a back-up plan for who takes charge of your affairs if you lose capacity and can’t make sound decisions. 

Many people also don’t realise there are tax consequences when you pass away. If you include tax planning as part of your estate planning preparations, you can significantly reduce those tax costs. 

Key Elements of Estate Planning:

  • A Will
  • Superannuation
  • Insurance
  • Powers of Attorney & Decision Makers
  • Succession Planning

Your Will

It’s important to know that your Will only covers the assets that you own personally. Such as your physical belongings, personal savings and assets and your Principal Residence (but only if owned as Tenants in Common). It can also cover gifts and bequeathments you wish to give others after you pass away.

Your Will does not automatically cover superannuation entitlements unless expressly nominated. And it won’t cover any personal or business assets held through family trusts or your Principal Residence if owned as a Joint Tenant. This is why it’s crucial to speak to a professional, so they can ensure all your assets are accounted for in the event of your passing.

What happens if you don’t have a Will?

If you die without a valid Will then an application for a Grant of Letters of Administration is made to the Supreme Court. Generally, the grant is then made to your next of kin, such as your spouse, domestic partner or child. It can be a messy process, and it can put a lot of strain on family members.

Tips for setting up your Will:

  1. Get professional advice!

Make sure you consult a lawyer to have your Will drawn up professionally – we do not recommend using DIY Will Kits! Wills are a complex legal document, and deviating even slightly can mean your wishes are not legally binding. The “one-size-fits-all” approach of a Will Kit especially doesn’t suit people with complex financial situations, business and superannuation structures and intricate family dynamics.

Professional advice is not just limited to legal advice either! You should be speaking with your accountant about your wishes, especially when it comes to self-managed super funds, business structures and succession planning. There are hidden “death taxes”, as well as Pre and Post Capital Gains Tax Assets, Testamentary Trusts and Asset Protection processes to consider.

2. Appoint an Executor

You need to appoint an Executor to your Will. These are the people who will be taking care of things and making big decisions on your behalf, so think carefully on this decision. An executor can be anyone you choose to nominate: a spouse, friend or adult child – but it also doesn’t have to be a loved one. You can choose to have an impartial third party like an advisor or your accountant to be your Executor instead.

It is important to speak to the person (or people) you want to nominate, to make sure they’re aware of and comfortable with the responsibility involved.

3. Keep it updated!

Creating a Will is not a “one and done” process. Your wishes are likely to change throughout your life as your circumstances and preferences evolve.

We recommend setting up a reminder to look at your Will every three years or so, just to make sure it still reflects what you want. On top of that, you should review your Will in the event of big life changes such as a marriage breakdown, the birth of a new child, your existing children turning 18, or a change in relationship with your Executor.

Superannuation

Your superannuation is not covered under your Will unless you make an express nomination, so Superannuation needs to be a separate consideration.

You should discuss the following things with your accountant when building your Estate Plan:

  • Binding and Non-Binding Death Nominations
  • Lapsing and non-lapsing death nominations
  • Reversionary pensions
  • Transfer Balance Cap – Hidden traps
  • Housekeeping – make sure your self-managed super fund deed is up to date
  • The hidden death tax

Insurance

It is important to review your insurances on a regular basis to ensure that they meet the needs of your family in the event of your incapacitation or death. This includes life insurance, TPD insurance, trauma insurance and income protection insurance. As with your Will and Executor, make sure you update your life insurance beneficiary and review your level of cover as your circumstances change. 

We have some wonderful insurance brokers in our Referral Network if you’re looking to chat to a professional.

Succession Planning

Succession Planning and Estate Planning go hand in hand. At Aintree Group, we are huge advocates that all business owners (no matter how large or small your business) should have a comprehensive Succession Plan!

When everything is going well, creating and maintaining a succession plan might not seem like a top priority. However, it is a critical element when thinking strategically about your business. Without it, your business will be left vulnerable in the event of unexpected departures, employee retirement or – in the context of Estate Planning – if a key person in the business passes away.

We recommend you get professional advice on the following things:

  • Family trusts (Discretionary Trusts) – The trust deed is the key document dealing with control of the trust on your death or incapacitation, make sure it is up to date and reflects your wishes!
  • Shareholders agreements and buy-sell agreements.
  • Discuss eliminating “bottle-necks” in your company’s decision making process. Get knowledge out of people’s heads and onto paper!
  • Have a plan in place in the event of the death of a key member of your team. This should include the process for replacing Directors, updating information with relevant third parties e.g. ASIC, updating internal processes and procedures, providing counselling for staff, and communicating the loss with your clients and suppliers.

This article contains general advice only. Estate Planning is an extremely personal process and can be very different from person to person, depending on your own circumstances. We you must speak to professional advisors, including your accountant and lawyer, when putting together your Estate Plan.

If you’d like to contact us about our tax, business or legal services, please call 03 9851 7999.