Estate planning is the overall process of working out beforehand how your assets are to be distributed upon your death. A good estate plan will ensure your assets are passed on in accordance with your wishes, taking into account your personal and financial goals. There are many issues to consider:
- How will my family manage if something happens to me?
- What happens to my superannuation and life insurance?
- How can I make provisions for specific purposes such as charitable bequests or for the education of grandchildren?
- What do I want to happen to my assets if my spouse remarries?
- Who will make these decisions if I become incapacitated?
Sensible estate planning will ensure the wealth you have built is transferred quickly, smoothly and in accordance with your wishes, relieving your family of the task of making difficult decisions. What may seem clear now may change over time and failing to have an estate plan in place can lead to potentially expensive and painful family disputes.
What is Estate Planning?
Estate planning is the process of arranging for your assets to be dealt with, after death, in accordance with your wishes while minimising the impact of stamp duty, tax and administration expenses.
Estate Planning is more than making a will – it is about dealing with the consequences of longevity, wealth, complex and blended family situations and the complexity of modern life. Effective structuring of your business and investments during your lifetime is an integral part of any estate plan.
What is Asset Structuring?
The underlying objective of an asset and estate plan is to generate wealth and then to quarantine assets to ensure that they remain available for distribution as you wish, and are not exposed to the risks of the commercial world, differing needs of family members or excess tax paid both now and in the future.
Asset structuring is simply creating a family structure and ensuring the right assets are held by the right structure. This may range from having assets to fund retirement in a superannuation fund to holding business assets such as property, goodwill and intellectual property in a trust separate from the trading business. It can also simply involve having a bank account in your spouse’s name.
The purpose is to provide the appropriate balance between flexibility of use and protection from the ravages of creditors, excess taxes, protection from spendthrift or unscrupulous family members, tax advantages, family law protection and longevity of assets.
Do I need a will?
A will is one of the most important documents any person will sign as it disposes of all the assets you have accumulated in your lifetime. After death the terms of a will can only be altered by a court and, unless a court intervenes, the will regulates how the deceased’s assets are to be finally dealt with.
Can my will be challenged?
A will can be challenged for reasons ranging from improper execution of the document through to complaints that it did not adequately apportion the deceased’s estate to potential or actual beneficiaries. Sound estate planning will ensure that the formalities needed to ensure the validity of the will are satisfied and that the scope for dispute about its terms is minimised.
Dealing with business assets
Business assets, such as shares in a company or ownership interests in a partnership or trust, often have the highest value and provide the greatest opportunity for dispute. A business succession strategy, providing for management and ownership of the company, partnership or trust, is normally an indispensable element of an estate plan.
What happens to my superannuation and life insurance
Superannuation and the proceeds of life insurance policies are another high value class of assets which need to be carefully dealt with as part of an estate plan. Superannuation structures need to be strategically reviewed on a regular basis to ensure that they comply with the ever-changing laws and that their tax-effective value is maximised. It is important to note that superannuation balances do not form part of a person’s estate so specific planning is required.
Who will look after my affairs if I am unable to?
By using an enduring power of attorney (EPA) you can select the person or people you wish to look after your affairs if you are incapacitated through illness, accident or old age. An EPA will specify the powers you wish to give to one or more people and can give directions about your wishes in relation to what happens to you and your assets.
Issues to be aware of
There are a number of situations which may require particular attention when deciding how to structure your asset and estate plan:
- What will my life look like in the future, am I contemplating taking on company directorships or other business risks? Is my family changing shape such as parents moving to aged care facilities, children marrying and having children?
- What flexibility do I want today and in the future for paying income to whom I choose?
- Is there anybody who could be dissatisfied with the distribution of my estate and might seek to challenge the provisions of the estate plan? (This would include any children or grandchildren, former spouses and anyone to whom you have provided financial assistance in the past, regardless of whether or not you still have any contact with them)
- Is there anybody in my family with special needs (such as disabilities) who needs to be provided for in my estate plan?
- Are any of my assets located in other jurisdictions or does another jurisdiction also see me as being domiciled there such as the US or UK which have death taxes? (If assets are located overseas, your plan may need to specifically cater for this)
- Are any of the intended beneficiaries of my estate exposed to personal or business risk? (For instance, are any of the intended beneficiaries encountering matrimonial difficulties or involved in professions which may result in them being sued?)
- Do I have any trusts, companies or self-managed super funds? (Additional steps may need to be taken to ensure that control of these entities pass as you intend)
- Do I intend to change my assets in the future including buying and selling the family home?
Who Should I Talk To?
A sensible asset and estate plan will usually require input from your financial advisor, accountant and lawyer to ensure that it effectively executes your wishes. Equitas Wealth’s estate planning service seeks to put in context complex financial, legal and family matters to complement your overall financial plan:
- Asset and estate plans specifically tailored to your needs and circumstances during your lifetime and beyond
- Strategies that maximise the value of your assets to pass onto your beneficiaries (such as tax planning)
- Working with Estate Planning solicitors to prepare legal documents including Wills, Powers-of-Attorney and Trust Deeds and other legal documentation that supports your plan
- Succession planning strategies for business owners and family businesses
- Choosing the appropriate risk insurance cover (such as minimising the tax on insurance payouts and future earning from that capital and maximising tax deductions on premiums)
- Using Self Managed Super Funds (SMSF) as a vehicle for estate planning.