Thy Will, Be Done

Or will it?

Let’s assume you have a Will and that it is fairly recent. Is this your Estate Plan? What’s the difference?

Your Will is to your Estate Plan what your foundation is to your home; It’s fundamental, however you still need to add a few important details here and there. An Estate Plan encompasses multi-disciplinary and co-ordinated strategy from specialists including Legal, Taxation, Financial Planning and Insurance Advisers. Its objective is to provide the right assets, to the right people and at the right time/s while minimising the threat of capital erosion through unnecessary litigation, excessive taxation and mismanagement.

Wills and Powers of Attorney should be prepared by a solicitor, ideally by someone who specialises in Estate Planning and has a detailed knowledge of your local jurisdiction. Wills can be changed or revoked at any time, subject to following proper procedures. Marriage revokes previous Wills, unless the Will was made in anticipation of marriage. Family Trusts and Self-Managed Super Funds (SMSFs) are normally separate from the Estate proceeds and therefore need to be addressed separately.

Siblings or parents are often chosen as Executors to an Estate, keeping matters within the family and hopefully saving cost. While Lawyers, Accountants and Trustee Companies are professional and impartial in exercising the obligations of Executor, their appointment adds cost to the process. Alternatively, the related Executor can seek specialist advice with the execution of their responsibilities. This is prudent when you consider that both civil and criminal penalties apply for getting it wrong. For example, Executors are required to deduct tax from beneficiaries’ entitlements, and withhold entitlements from bankrupt beneficiaries (or rather, pay these to the bankruptcy trustee).

Failing to make adequate provisions in your Will for the education, maintenance and advancement of a dependent, increases the risk of challenge from, for example, children of a former marriage or even extra-marital relationship. As the costs of challenges are borne by the Estate, there is little disincentive for disgruntled parties to challenge a Will.

Powers of Attorney and Guardianship are just as important as the Will itself. Provisions for Testamentary Trust/s provide direction for the use of Estate capital and income and may be invaluable in the care of minor children or those beneficiaries with long term dependency, special needs or a ‘black sheep’ family member. These trusts also provide tax benefits for minor beneficiaries.

Superannuation and SMSFs can be invaluable Estate Planning vehicles, with tax advantages and protection from creditors. SMSF Strategies, including insurances via superannuation, need to be reviewed as your circumstances evolve to assess the impact of tax on benefits (against the tax benefits of funding via superannuation). By contrast, proceeds of a Life insurance policy owned personally (not via Superannuation), can potentially bypass the Estate Plan altogether, avoiding delays in payment and tax on those benefits. Corporate Trustees for your SMSF (as opposed to individual Trustees also provide greater perpetuity for the fund on the death of one of the trustees.

Self-employed professionals are often at greater risk of litigation and potential bankruptcy. Asset protection is sometimes at odds with tax effectiveness, some accountants even favouring tax minimisation over asset protection. Having assets owned by a Trust or spouse has potentially significant implications for Estate Planning. The rising incidence of separation and divorce adds even more complexity to the mix.

It is apparent therefore that a considered and effective Estate Plan is more than just Wills, nor is it a set-and-forget strategy. A co-ordinated team of specialist advisers including legal, tax and financial planning and insurance is crucial to getting the detail right. Importantly someone also needs to act as project manager to ensure that the various components are progressing and co-ordinated.

Note: Examined Life are not Estate Planning Lawyers or have any ownership in an Estate Planning Legal Practice. We seek out ethical specialists in each State to assist our clients, and work with them to implement effective and co-ordinated solutions.

References:

TAL Estate Planning Master Classes (1 & 2)