Estate planning is more than simply having a will. An effective estate plan includes a tax effective Will that protects your estate and the interests of your beneficiaries.
Importantly; jointly held assets, your superannuation assets, and assets in a trust, are not necessarily dealt with by the terms of the Will. It is important to have a comprehensive and well considered estate plan to ensure that all assets are transferred according to your wishes. In the majority of cases these are usually considered ’non-estate’ assets for estate planning purposes.
Dying without a Will or having an invalid Will is known as dying Intestate. In such an event, laws are in place in each State to determine how your estate will be administered. This may result in your estate being distributed against your wishes as well as incurring unnecessary tax liabilities for your beneficiaries.
Most people wrongly believe that their Will covers all of their assets, it does not. So extra care should be taken to ensure that the ownership and control of all of your assets, including ’non-estate’ assets pass to beneficiaries in the way you intend.
You are required to nominate an Executor in your Will. The Executor you appoint has the responsibilities of carrying out your wishes in the Will and is granted power to administer the estate as part of the process. Administering the Will may include paying off any debts, collecting assets and distributing the benefits to those entitled.
Your superannuation assets are excluded from your Will, with any benefit payable upon death distributed by the Superannuation Trustee in accordance with the Trust Deed. This usually gives the Trustee the discretion to decide who should receive your Superannuation entitlements. You are able to nominate how you wish to distribute your superannuation assets via a Binding Death Nomination which is a written declaration to the Trustee outlining which beneficiaries you wish your superannuation entitlements to be paid to in the event of your death. The nomination can be amended or cancelled by you at any time via written declaration to the Trustee.
Eligible beneficiaries are detailed in superannuation legislation and include your legal personal representative and your ‘dependents’. A dependent for this purpose includes; your spouse, your children, any financial dependent or a person in an interdependency relationship with you.
A Testamentary Trust
A Testamentary Trust is a trust created in accordance to your Will and may have several significant advantages over other estate planning instruments. The terms of the trust deed of a testamentary trust are contained in the Will.
Testamentary Trusts may assist to distribute your estate to your beneficiaries in a more tax-effective manner and may reduce the likelihood of a successful challenge to your Will. A Testamentary Trust may also provide asset protection for beneficiaries of your estate who may face certain legal claims on their assets, divorce or bankruptcy for example.
Until such time as the trustee exercises their discretion to pay an income or asset entitlement to a beneficiary, all trust assets and income remain the property of the trustee. As the trustee will have discretion over the assets, you should carefully consider who you appoint as trustee.
Note that if the trust is established in contemplation of frustrating the claims of, for example, legitimate creditors, the courts may effectively unwind the arrangement.
Power of Attorney
Granting a Power of Attorney means that you legally appoint a person or an organisation to make decisions, sign documents, and act on your behalf in various matters.
When you grant a Power of Attorney you may choose to limit the actions which the attorney can perform on your behalf (Limited Power of Attorney) or give the attorney wide powers to undertake actions on your behalf (General Power of Attorney).
Enduring Power of Attorney
One of the limitations of a Power of Attorney is that it generally ceases when the person suffers a loss of mental capacity. This can be overcome with the use of an Enduring Power of Attorney. This type of Power of Attorney does not cease on mental incapacity and can therefore provide an important tool in estate planning.