Mar 08, 2023 / News

Financial Planning

Effective Estate Planning – what you need to know

It’s hardly surprising. 

The first thing most Australians think of when the subject of Estate Planning comes up is their Will. It’s also surprising that when asked, one in four people tell me that they do not have a Will!

Yet, whilst having a carefully considered, legally binding Will is undoubtedly important, it’s far from the only step in the strategic process of preserving your property for your family or other beneficiaries when you die. It’s especially the case nowadays given we live in a time of constantly changing taxation, regulatory and economic conditions.

I’ll go into some detail about Estate Planning in a moment. But first, did you know one of the most common questions clients ask about Estate Planning is: 

‘Do I need a Will?’ 

My answer is always a resounding:

“Yes!’ 

Just some of the reasons why are listed, below. It’s worth considering if any of these might apply to you.

Without a current and valid Will:

There is no guarantee your assets will be transferred and your liabilities paid on your death as you want.

The State Government’s order for distributing assets will apply. If you have no family as defined by that order, your assets could even go to the Government.

If you are married or in a de facto relationship with children only from that relationship, the law now provides that your spouse/partner gets all your assets. However, if you are married or in a de facto relationship and have children from another relationship, your surviving spouse/partner does not get all your assets. In that case, your surviving spouse/partner is only entitled to your personal effects, an amount of money set by law and 50% of the balance (subject to certain rights of election to purchase assets from the estate).

The other thing to remember is that a Will is not a ‘set and forget’ document. Just as life is constantly changing, so should your Will. You should review your arrangements should a significant event occur, be it related to your family, your assets, your job, your health, your children’s health or even your age/life stage. For example, if a child is born or perhaps you purchase an item of property, you need to make sure your Will adequately covers your new circumstances. Even if there are no significant events, Wills should be reviewed at least every two years. We suggest you review your Will each year so it builds the discipline of attending to this very important task. 

We often wonder why people do not want to make a Will. 

Here are some common reasons: 

• I can’t decide who to leave my Estate to.
• I’ll “do it later” when “I have to”
• I don’t care what happens - I will not be here!
• Too expensive.
• I don’t want anyone to know my finances.
• My affairs are simple.
• I don’t want to have to deal with this.

Whose advice should you seek?

A carefully considered Will can deliver legal and financial benefits for yourself and your beneficiaries. Of course, the reverse is also true. This is why it’s an essential to discuss your Will with your lawyer, accountant and financial advisor. Collectively they’ll be able to help you by asking some important questions about your Will, such as:

• Does it give your beneficiaries an optional, flexible tax planning investment vehicle for the future? 
• Does it prevent your surviving spouse from wavering from your agreed plan?
• Does it permit you to transfer control of your assets as you want?
• Does it protect your assets from bankruptcy of your beneficiaries?
• Does it protect your assets from a marriage breakdown of your beneficiaries?
• Does it protect your assets as you want? 
• Does it provide tax advantages to your beneficiaries?
• My beneficiaries are Non Residents of Australia, can they inherit my estate and what are the taxation consequences?
• I have assets overseas, do I need a separate Will?
• Have you discussed your last wishes with your beneficiaries?

A properly drafted Will, often with the inclusion of a Testamentary Trust can address all the above points and more. It’s also important to remember that simply having a Will doesn’t automatically mean your assets will be passed on as you want. Let’s look at why…

Estate Planning: Beyond your Will

An Estate Plan is an overall strategy, developed to give you financial security and the ability to meet your lifestyle expectations during your life AND a seamless, cost-effective transition to your beneficiaries when you die. Its scope can be as simple or far-reaching as you require, but typically it’s considerably more holistic and comprehensive than simply having a Will. It can include arrangements such as establishing a testamentary trust, memorandum of wishes, the nomination of powers of attorney and, if you have young children, enduring guardians. It can also provide advice and long-term financial strategies to help protect the interests of your dependents, including mechanisms to effectively quarantine your assets for the benefit of your dependents when you die. In other words, it’s pretty important!

The six key steps of Estate Planning

Every situation is different. However, here at Nexia we typically recommend five stages to implement a successful Estate Plan.

Step 1 - Getting the Facts 

This is where you tell us about yourself – and your family, if relevant – so that in the brief to your lawyers, they can make sure that if you lose your capacity or die, your assets will be managed and passed on in accordance with your wishes. This includes identifying your Personal Assets (assets held in your personal name or jointly with another party such as your home, shares, bank accounts, personal life insurances outside superannuation) and Non Personal Assets (those you don’t own personally such as an interest in assets via a company shareholding, potential or controlling interest in a trust or membership of a superannuation fund, including life insurances held inside superannuation).

Step 2 – Appointing Your Executor/s

Once the assets of the Estate have been identified, an Executor/s needs to be appointed. The Executor/s is the person/s nominated by the Will maker to be responsible for the administration of the Estate following death. So, choosing the right person is crucial. I will leave that topic for another day.

Step 3 - Power of Attorney and Guardianship appointment

This step is usually more important much earlier than your Will as these documents are used during your lifetime should you lose your mental capacity. By setting up an Enduring Power of Attorney and Guardianship appointment, you’re essentially delegating authority to another person to perform lawful acts on your behalf. A Power of Attorney is a useful Estate Planning tool and can be tailored to suit the needs of the Principal (i.e. you).

Step 4 - What happens to your assets when you die?

During this step you’ll work closely with your lawyer to discuss what you want included in your Will and what you want to happen with your assets when you die. There is no right or wrong here, it’s all about your personal wishes.

Step 5 - Profiling your Will and Estate Plan

Here, you instruct your lawyer how to structure what you want to happen when you die. You will normally choose whether you want testamentary trusts and if so, whether you want asset protection measures included as part of them. This stage is all about how testamentary trusts and other protective measures can protect your assets against the potential risks that need to be considered and at the same time be potentially tax efficient.

Step 6 – Review! Review! Review!

As mentioned earlier, Estate Planning is not set and forget. You need to constantly review your Will so it can be adjusted as and when required. You need to ensure all of your assets and any entities you control that own assets, continue to be structured in a way that permits your wealth to be passed as you intend. Whenever changes occur, your lawyer is best placed to explain what needs to be done and/or changed to make this happen. 

Need some help?

In recent years the demand for assistance with Estate Planning has risen steadily. As a result, Nexia offers these services to our clients. By working closely with you, as well as your legal and financial planning representatives, we can use our considerable experience to assist in ensuring the outcomes you want and expect for your beneficiaries.

The above is a guide only and is not to be relied on as advice. Should you wish to discuss the contents of the above in relation to Estate or Succession Planning feel free to contact us.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.