Estate planning is about more than making a will. A good estate plan gives clear instructions about what should happen to your assets, who should make decisions for you if you lose capacity, how your family should be protected, and how unnecessary stress, cost and disputes can be avoided.
A properly prepared estate plan protects you during your lifetime and gives your family a clear path forward after your death.
Providing for your loved ones
The first purpose of an estate plan is to make sure your assets pass to the right people. This may include your spouse or partner, children, grandchildren, other family members, friends or charities.
A good estate plan should also consider whether any beneficiary needs special protection. For example, a young child, a person with a disability, a financially vulnerable beneficiary, or a beneficiary going through bankruptcy, separation or addiction issues may need a more carefully structured gift.
In some cases, leaving a direct inheritance may not be the best option. A trust structure may be more appropriate, particularly where there are young children, blended families or vulnerable beneficiaries.
Appointing the right people
Your will appoints an executor. The executor is the person responsible for managing your estate after death. Their role may include locating your will, identifying assets and liabilities, applying for probate, paying debts and taxes, and distributing the estate to beneficiaries.
Choosing the right executor is important. The person should be trustworthy, organised and able to deal with banks, lawyers, accountants, government bodies and family members. A good estate plan should also appoint a backup executor in case your first choice cannot act.
Providing for children and dependants
If you have young children, your estate plan should deal with guardianship. This means identifying who you would want to care for your children if both parents died or could no longer care for them. However it should be noted that a guardianship nomination in a will will still have to be approved by a court under the Family Law Act.
Your will can also set out how money is to be held for children until they reach a suitable age. For example, you may not want a child to receive a large inheritance at 18. A will can provide for funds to be held on trust until a later age, such as 21, 25 or older, or you may wish to create a trust for a beneficiary with a disability.
Planning for incapacity
Estate planning is not only about death. It should also deal with what happens if you lose capacity during your lifetime.
A complete estate plan may include enduring powers of attorney and medical decision-making documents. These documents allow trusted people to make financial, personal or medical decisions if you are unable to do so yourself.
Without these documents, your family may need to apply to a tribunal before they can manage your affairs. That can cause delay, cost and stress at an already difficult time.
Protecting vulnerable beneficiaries
A good estate plan should also consider whether any beneficiary needs protection.
A vulnerable beneficiary may be someone who is young, has a disability, has difficulty managing money, is in an unstable relationship, has addiction issues, is bankrupt or at risk of bankruptcy, or may be influenced by other people.
In those cases, leaving a gift directly to the beneficiary may not be the best option. The will can be drafted so that the inheritance is held on trust and managed by a trusted person. This can allow funds to be used for the beneficiary’s housing, education, medical needs, maintenance and general wellbeing, while reducing the risk that the inheritance is lost, misused or taken advantage of.
A trust can also provide flexibility. It may allow money to be distributed gradually, used for specific purposes, or managed until the beneficiary reaches a suitable age or stage of life.
This type of planning is especially important for parents of young children, families with a beneficiary who has a disability, blended families, or situations where there are concerns about financial pressure, relationship breakdown or outside influence.
Dealing with superannuation
Superannuation is often one of a person’s largest assets, but it does not automatically pass under a will. Your super fund will usually decide who receives your death benefit unless you have made a valid binding death benefit nomination.
A good estate plan should consider who should receive your superannuation, whether your nomination is valid and current, and whether the benefit should pass directly to a dependant or to your estate.
This is also a tax issue. Superannuation death benefits have specific rules, and children over 18 generally need to be financially dependent on the deceased to be treated as dependants for superannuation death benefit purposes. This can be important where superannuation is intended to pass to adult children, as if the beneficiary a non-dependant beneficiary will be subject to tax on the taxable component of the fund. A good estate plan takes all your assets, including superannuation and minimises the taxation consequences of death by allocation assets to tax advanatged beneficiaries to reduce the beneficiaries overall tax liabilities.
Considering tax issues
Australia does not have a general inheritance tax or death duty, but tax can still be an important part of estate planning.
Capital gains tax may be relevant where the estate includes real estate, shares, business assets or investment assets. CGT is generally not triggered merely because a person dies and an asset passes to an executor or beneficiary, but it may become relevant when the asset is later sold. Inherited property may be exempt from CGT in some circumstances, including where the property was the deceased’s main residence and the relevant conditions are met.
The family home requires particular care. The CGT outcome may depend on when the property was acquired, whether it was the deceased’s main residence, whether it was used to produce income, who occupies it after death, and when it is sold. Inherited property can be exempt from CGT if it is disposed of within two years of death and certain conditions are met.
Understanding jointly owned assets
Not every asset passes under a will. Jointly owned property may pass automatically to the surviving joint owner. Property owned as tenants in common, however, can be dealt with under a will.
A good estate plan should look at how each asset is owned. This includes land, bank accounts, shares, business interests, vehicles and personal property. The ownership structure should match the estate planning intention.
Business, farming and trust structures
Estate planning is especially important where there is a business, farm, company, family trust or self-managed superannuation fund.
A will may not control all of these assets directly. For example, a family trust is usually controlled through the trustee and appointor structure. A company is controlled through shares and directorships. A farm may involve land, water rights, plant and equipment, livestock, partnership interests and family loans.
A good estate plan should consider who controls these structures after death or incapacity, whether the business should continue or be sold, and whether any tax or duty consequences may arise.
Reducing disputes
A clear estate plan can reduce the risk of family conflict. Disputes often arise when documents are unclear, outdated or incomplete. They can also arise where a person has made promises during life that are not reflected in their will.
A good estate plan cannot always prevent a claim, but it can reduce confusion and place the estate in a stronger position.
Recording personal wishes
An estate plan can also record personal wishes, such as funeral preferences, burial or cremation wishes, pet care, sentimental gifts and digital assets. These wishes may not always be binding in the same way as a gift of property, but they can provide helpful guidance to your family.
Reviewing the plan
Estate planning should be reviewed when major life events occur, including marriage, separation, divorce, the birth of children, buying or selling property, starting a business, receiving an inheritance, changing super funds or a significant change in financial circumstances.
An outdated estate plan can create the same problems as having no plan at all.
Final thoughts
A good estate plan provides certainty. It answers the key questions: who receives your assets, who controls your estate, who makes decisions if you lose capacity, who looks after your children, what happens to your superannuation, and how tax and disputes can be managed.
A properly prepared estate plan gives you peace of mind and gives your family clear guidance when they need it most.
O’Haire Legal can assist with wills, powers of attorney, estate planning and estate administration. Contact us to discuss an estate plan tailored to your family, assets and circumstances.
