Estate planning

Estate planning

The Will

Having a valid will states your wishes as to how your estate is managed and distributed after your death.  It is a legal document that should be well thought out and properly prepared to minimise the chance that it could be contested.

If you die without a valid will in place you’re are said to have died ‘intestate’. While some people have their reasons for not leaving a Will, the effect of this could result in number of negative consequences as your estate may be distributed in a way that is not aligned with your wishes. For example:

  • A person or persons who you wanted to receive proceeds from your estate may not receive what you had intended or any proceeds at all;
  • Not making clear provisions may mean loved ones/surviving partners may be placed under extra burden at a time of grief and stress;
  • It may open up conflict between potential beneficiaries and other parties claiming a stake in the inheritance;
  • It may take more time and cost more money to distribute and finalise the estate.

Utilising the services of a solicitor/legal firm tends to be the preferred option especially for those with more complex financial and family situations. DIY and online wills are a less expensive option, however care should be taken as to ensure your instructions are clearly and fully outlined and your wishes are not open to misinterpretation.

The Executor

Having a valid will in place involves nominating an executor or a number of executors. An executor is a person responsible for carrying out the wishes of the deceased and they have a number of duties and responsibilities including:

  • Attending to funeral arrangements
  • Locating the will
  • Applying to the Supreme Court for a grant of probate of the last will written by the deceased if required (probate is an authorised document that confirms the executor and provides permission to administer the estate)
  • Determining the beneficiaries
  • Collecting, protecting and confirming insurance of assets
  • Making sure all claims and debts are paid, if substantiated/validated
  • Managing accounts
  • Notifying beneficiaries and distributing assets according to the terms of the will. This may include managing trusts
  • Preparing and lodging final taxation returns
  • Defending litigation if applicable

While having a valid will in place can alleviate potential issues listed above there is more to estate planning that should also be considered.

Enduring Power of Attorney

Appointing an Enduring Power of Attorney (EPA) is extremely important. When you appoint someone you (being the donor) give the attorney legal power to transact as you would, but can be restricted to applying to certain events such as you losing mental and/or physical capabilities to the point that you are unable to transact yourself. Generally you can appoint an attorney to deal with financial affairs, personal (medical) matters or both however there are restrictions on who can be appointed.

An attorney becomes legally responsible when the EPA is activated. This may be immediately on signing the EPA or when a doctor or medical specialist says that the donor has lost the ability to make financial decisions. If more than one attorney is appointed it must be stated if they must act jointly (together) or can act severally (individually) or if there are any variations to this, for example two of the three attorneys must agree on the decision. If there is more than one attorney appointed ‘jointly’, they must all agree and act on the decision.

An attorney has a legal duty to act in the best interest of the donor at all times. An attorney who acts improperly can be held personally and criminally liable for losses and the attorney’s assets and income may then be at risk. Attorneys must take into account any instructions from the donor in the EPA.

The attorney’s main role is to pay the donor’s bills and accounts with the donor’s money. The attorney must keep and maintain accurate records, logs and accounts for all dealings and transactions when exercising their powers. Failure to do so is an offence. It is also important to note that attorneys do not have any right to any potential inheritance before the donor’s death.

The attorney cannot be paid for work done on behalf of the donor nor can they pay themselves a wage for duties performed under the EPA. They can however claim out of pocket expenses and travelling expenses directly connected to carrying out those duties. They can buy and sell property on behalf of the donor, but only if it is in the donor’s financial interest to do so, for example to pay for residential care.

These and other duties, responsibilities and requirements may vary from state to state. Information on these can usually be obtained by searching the relevant state/territory government trustee, guardian or public advocate website.

The risk of not having an EPA could mean delays in making important decisions and in dealing with financial transactions. This is because no person automatically has the right to act on your behalf. Application to the relevant state or territory authority may be required and this could take time and the appointee (attorney) may not be the person you wanted. Unfortunately there is evidence of people abusing this authority so it is vital that when granting such powers you choose people you trust implicitly.

Superannuation

The distribution of superannuation money is usually treated separately to assets distributed through a person’s estate so the ability to make binding nominations or nominate a reversionary beneficiary needs to be considered where applicable. This is an important component of Estate Planning as the structure of investments can affect the way a person’s assets are passed to beneficiaries. For example funds passed to dependent beneficiaries may receive different taxation treatment to those passed to non-dependent beneficiaries. See related article ‘Distribution of Super Death Benefits’

Funeral Costs

Costs also need to be planned for in the event of death which includes funeral expenses. These can be quite significant and vary according to what standard of funeral/ceremony is desired.  Depending on a person’s financial situation and eligibility to Government Income Support, prepayment of these expenses or the use of Funeral Bonds are options to consider and could result in a larger pension for those who do not qualify for the full pension, or possibly qualifying for a part pension for people who previously would not have qualified for a pension at all. See related article ‘Meeting Funeral Expenses’.

The information in this article does not constitute or imply financial advice. We recommend that you seek professional financial advice and/or seek clarification from any relevant government department, legal representative or licensed financial services provider before making financial decisions.

Need more information?

National Seniors members can access free independent financial information from the National Seniors Financial Information Desk (FID).  Call us now on 1300 020 110. FID is an independent, confidential service funded by National Seniors Australia that aims to improve the investment information available to older Australians. Their role is to arm people with up-to-date independent information that will assist them in making those big decisions prior to and in retirement.

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