Looking After Your Family.
Effective Estate Planning
Estate planning An effective estate plan includes tax effective Wills to protect your estate and the interests of your beneficiaries in the event of your death.
Jointly held assets, trust assets and superannuation however, are not necessarily dealt with by the terms of the Will. These are usually considered ’non-estate’ assets for estate planning purposes. Note there may be specific State legislation that classifies nonestate assets as ‘notional estate’ for the purposes of a family provision challenge. It is therefore important to have considered a comprehensive estate plan to ensure all assets are transferred according to your wishes in the most effective and efficient manner.
Outlined below are some factors to consider when developing your estate plan.
Dying without a Will or with an invalid Will is known as dying intestate. In such an event, laws are in place in each State and Territory to determine how your estate will be administered. This may result in your estate assets being distributed against your wishes as well as incurring unnecessary tax liabilities for your beneficiaries.
Your Will is the document that directs how your estate is to be distributed amongst your nominated beneficiaries. Most people wrongly believe their Will covers all their assets, so special care should be taken to ensure the ownership and control of all your assets including ’non-estate’ assets, pass to beneficiaries in the way you intend.
Generally, your superannuation is an asset excluded from your Will. Any benefit payable upon death is 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.
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.
Therefore, even if your intention is to direct your superannuation directly to a beneficiary, you should include a provision to deal with superannuation in case it is paid to your estate.
A testamentary trust is a trust created pursuant to your Will and may have several significant advantages. There are different types of testamentary trusts, including discretionary trusts and special disability trusts. As with any trust, the trustee must act according to the terms of a trust deed and has the duty and responsibility to look after trust property for the benefit of others.
Appointing a trustee may involve a financial cost and as the trustee will have discretion over the assets, you should carefully consider who you appoint as trustee. The terms of the trust deed of a testamentary trust are contained in the Will. As with most trusts, a testamentary trust will normally give the trustee: • the discretion to allocate income and capital among any of the beneficiaries • wide powers of investment, and • the power to wind up the trust at any time.
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. 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. However, if the trust is established in contemplation of frustrating the claims of, for example, legitimate creditors, the courts may effectively unwind the arrangement. These and other factors require careful consideration by your solicitor in conjunction with your financial adviser.
Power of Attorney
Granting a Power of Attorney means 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).
Specific details as to the powers under a Power of Attorney are determined by the state legislation to which the Power of Attorney relates. This may present difficulties if, for example, you have property in more than one state.
Enduring Power of Attorney One of the limitations of a Power of Attorney is 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.
Medical Treatment and Lifestyle Decisions
It is important to note different states have different ways of dealing with medical and lifestyle decisions for a person who is mentally incapable of making such decisions. Such methods may include:
- Power of Attorney (medical treatment) – attorney has the power to give and in certain circumstances, withhold consent to medical treatment on your behalf
- Enduring Guardianship – guardian has the power to make personal and lifestyle decisions for you should you lose mental capacity, including decisions as to where you live and who with
- Enduring Power of Attorney – attorney has the power to act on your behalf during your life, in relation to your investments and other financial matters
- Advance Health Directive – a document in which you can express your wishes about medical treatment and how you would like your body to be dealt with in the event of an accident
As state based requirements differ, it is important to seek advice from an appropriately qualified legal professional on these and other issues when putting together your estate plan.