What is Estate Planning, and why is it so important?

When lawyers talk of an estate plan, they will be referring to a variety of documents that relate to the disposal and protection of your assets on your death. These documents will often include Wills, Enduring Powers of Attorneys, Enduring Guardians, Superannuation Trust Deeds for SMSF, review of Trust Deeds, Company Constitutions, and Shareholders Agreements.

A properly executed estate plan will provide asset protection for beneficiaries, taxation benefits, flexibility to deal with any changing needs of beneficiaries, and certainty in relation to vulnerable beneficiaries. There are good reasons why everyone needs an estate plan, meaning that they are not just reserved for the wealthy. The assets that you accumulate throughout your lifetime may include real estate, superannuation, cash in the bank, interest in a company or in another trust from your parents. And the way that you can dispose of those assets on your death are different.

A Will can only dispose of assets which are considered “estate assets”, and what this means is that assets which are held: jointly with another person (i.e., real estate as joint tenants), in a superannuation fund, in trust or company, are non-estate assets, and pass to another person in accordance with either the law, or the documents which relate to each asset. Therefore, you need to have the correct documentation and pathway to appropriately dispose of everything you own on death.

So how do these non-estate assets pass to another person?

If you own real estate with one or more people, you have a choice as to how you hold your interest; joint tenants, or tenants in common, and there is an important distinction. Real estate held as joint tenants will mean that on the death of one of them, the surviving joint owners inherit that share through the Rule of Survivorship, regardless of what any Will may say. If your joint owners are not your intended beneficiaries, you should consider severing the joint tenancy to become tenants in common. This will allow you to dispose of your share of that real estate under your Will in whatever way you think fit. There are some very sensible reasons why a severance of joint tenancy is not advisable, so caution must be exercised.

The death benefit from a Superannuation can only be paid out either by the Trustees of the superannuation in their discretion, or in accordance with any Death Benefit Nomination that exists, whether binding or non-binding. The Trustees and any Death Benefit Nomination can only choose to appoint, and therefore pay, beneficiaries who are eligible beneficiaries, or the Legal Personal Representatives of your Will (so your Executors). SMSF’s are a bit different. They are governed by the Trust Deed that created that fund, and that Trust Deed should contain the procedure on how you can either nominate a beneficiary of any death benefit, or what happens on your death. But again, all beneficiaries must be eligible beneficiaries to receive a superannuation death benefit.

If the interest you hold in a company or trust is as shareholder or Trustee/Appointor, you do not own the underlying capital held within those entities. Instead, you can dispose of your roles in those entitles under your Will, but the capital will be dealt with in accordance with any Trust Deeds, Company Constitutions or Shareholders Agreement that exist.

What about Powers of Attorneys and Enduring Guardians? – are they important?

The short answer is yes – both Enduring Guardians (EG) and Enduring Powers of Attorneys (EPOA) play an important part in your estate plan, as they serve a very useful purpose in managing your assets during your life if you lose the capacity to manage them yourself, even if that incapacity is temporary.

We often see a lot of clients who want us to prepare an EPOA and send a copy to their financial advisor or accountant, so that their investments or superannuation can be effectively managed at a moments’ notice if they are unable to do it themselves, for whatever reason.

Failure to put in place someone who you can trust to manage your money and wellbeing, could result in either an inappropriate family or friend being appointed by NCAT, or a financial manager through the NSW Trustee & Guardian.

I have an accountant or financial advisor; do they need to know I am talking to you?

Depending on your assets, we may also involve any accountant or financial advisor that you regularly use to assist us in preparing your estate plan. This allows all parties to participate in how your assets are managed both during your life and on death, in the most tax efficient method. After all, an inappropriate estate plan, or no estate plan at all, can trigger all sorts of implications from disposing of assets which are subject to specific gifts in your Will to unintended tax consequences.   

To speak with one of our Wills and Estates Team, please contact us on 8525 2700 or click here to request an appointment.

Article written by Rebecca Exley
Photo by Glenn Carstens-Peters on Unsplash