Estate planning explained

Estate planning is much more than just a will, its about planning for what happens to your assets and affairs after you die. As well as who takes care of your affairs in the event that you lose capacity. Estate planning is an essential part of any financial plan and important to get in place whilst you are healthy and in control.

An estate is everything comprising the net worth of an individual, including all land, real estate, possessions, financial securities, cash and any other assets the individual owns or has a controlling interest in.

Estate Assets

Estate assets are assets that are personally owned either outright or as tenants-in-common with another person or entity.

The most common estate assets are:

• Personal property, such as a car, collectibles, property
• Debts and loans
• Share of assets owned as tenants in common
• Share of any partnership assets
• Shares in proprietary company held by the deceased
• Right to recover monies owed to the deceased
• Rights held under a contract

Life insurance and superannuation benefits paid to the deceased’s estate.

How can an estate plan help?

• You can make your wishes known

  One of the benefits of a sound estate plan is the ability to formalise your wishes in writing. This can help if someone contests what you’ve said you want after you’ve passed away, or if you’re unable to speak for yourself.

• You could minimise disagreements

  Unfortunately, disputes often arise when unsettled assets need to be distributed among others—especially if there are no clear guidelines set. Being prepared with an estate plan could go a long way in preventing disputes should family members need to divide assets among themselves or make other hard decisions on your behalf.

• You may improve tax consequences for your heirs

  As the distribution of assets (including your income) can come with different tax obligations, a good estate plan might also minimise any tax that your heirs would need to pay. For instance, if they decide to sell something they’ve inherited, depending on the type of asset, they may need to pay capital gains tax. Estate planning, particularly with the guidance of estate planning specialists, could reduce these extra tax costs.

Writing a will

Writing a Will is just one small part of estate planning, but a vital one. Deciding how your assets will be divided and managed in the lead up to and after your death.

According to finder.com.au 52% of Australians (9.9 Million) do not have a Will. If you die without a Will, your death will be classed as intestate, which means that your assets are allocated by the state government and can be distributed how best see fit. If you want your assets to be divided a certain way, it’s vital to draw up a Will.

Its easy to put the task off, but by paying close attention to your wealth management allows you to take the pressure off your loved ones at, what will, be a difficult time.

You can prepare a Will several ways, including:

• Instruct a lawyer to draft up a Will – the cost of a written Will by lawyer can cost between $400 - $3,000 depending on the complexity of the will.

• Ask a government body – you can ask a state-based public trustee to help you draft a Will. This may be a free service for some groups such as pensioners; for others it will involve a fee.

• Complete a DIY Will kit – there are many to pick from online but be aware that the DIY Will kit only covers very basic clauses such as appointing an executor and leaving your entire estate to your spouse or children.

Testamentary Trust

A testamentary trust is a trust created by your Will and does not come into effect until after your death. There are various types of testamentary trusts, but it is usually a trust where the trustee has full discretion about distributions to the beneficiaries. For a trustee to properly exercise their duties, they must be able to clearly identify the beneficiaries. If there is uncertainty as to who the beneficiaries of the trust are, then the courts can resort to the default position as if you died without a Will. 

You set the terms of the testamentary trust in your Will. These terms can restrict the ability of any of the beneficiaries to control the activities and investments of the trust or give them complete control. You might choose to 'rule from the grave' to ensure that the inherited assets are protected and used sensibly for the benefit of the primary beneficiary. If you decide to do this, then you should probably have an independent person in control of the testamentary trust and you should consider all the implications of this very carefully.

Life Insurance

Many people take out life insurance as part of estate planning to provide a financial safety net your family can use to pay for your funeral, to meet mortgage repayments or to protect your interests in a business partnership.

You may choose to hold this cover in your super fund. Alternatively, it can be held outside super, in which case your beneficiaries may receive a lump sum from the policy after your death.

It’s important that you keep your life insurance policies beneficiaries are up to date and listed correctly.

At Oracle Advisory Group, our team of trusted insurance advisors hold over 30 years’ experience in financial planning for individuals. We offer the technical expertise to prepare and manage your personal insurance, keeping you informed throughout the process.

Personal Succession Planning

Personal succession plan assists you while you’re alive, so that in the event of your death assets will be transferred to the people intended to benefit.

A personal succession planning is important as you age, especially if one partner takes care of the finances. It is important to streamline this area, so that there is a plan or process in place to alleviate issues.

Effective asset protection (life insurance) and personal succession planning ensures that the appropriate assets are with the appropriate people at the appropriate time.

Superannuation

Unlike your other assets, superannuation does not form part of your estate and is not part of your Will. But deciding who receives your super, which will be distributed as a superannuation death benefit after you die, is still a function of the estate planning process.

You will need to nominate a beneficiary or beneficiaries to receive your death benefit from your super, which includes your super account balance and any insurance benefits. You need to make either a binding or non-binding nomination that sets out who receives your super.

You can only nominate certain people to receive your super on your death. They include your spouse or de-facto, your children, stepchildren and adopted children, people who are financially dependent on you and people who are interdependent and have a close relationship with you at the time of your death.

Estate Planning key points to remember:

• Consider drawing up a will and whether you want something legal binding

• Review your nominated beneficiaries for any super or insurance you might have

• Consider appointing an enduring power of attorney to make decisions if you can’t

• Choose an executor to help carry out your wishes when you’ve passed away

Estate planning can be a very complex task, and there could be legal and tax implications if you don’t set up things correctly and fully understand the fine print.

Procrastination is the biggest enemy of estate planning. While none of us likes to think about dying, improper or no planning can lead to family disputes, assets getting into the wrong hands, long court litigation, and excess money paid in estate taxes.

So, pick a time to get started.

For these reasons, we recommend talking to a legal professional and financial advisor before making any decisions and signing on the dotted line.

At Oracle Advisory Group, we specialise in analysing your current Estate and Succession Planning needs and connecting you with Estate specialists who can advise the best outcomes for you based on your specific needs.

For more information speak to an Oracle Advisory Group financial advisor today on 02 4063 1263 or book a complimentary consultation today!

Important information - Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.