Many people put estate planning off because it feels uncomfortable or complicated. However, proper planning can make things much easier for your family and can reduce the risk of costly estate litigation.
Below are some practical estate planning tips to consider.
1. Make Sure You Have a Valid Will
A Will is one of the most important estate planning documents you can prepare.
Your Will should clearly set out:
- who you appoint as executor;
- who receives your estate;
- what happens if a beneficiary dies before you;
- who should care for minor children, if relevant;
- whether gifts are made directly or through trusts; and
- any specific gifts, such as jewellery, personal items or family heirlooms.
If you die without a Will, your estate will be distributed under the rules of intestacy. This may not reflect your wishes and can create stress and uncertainty for your family.
2. Choose the Right Executor
Your executor is responsible for administering your estate after your death.
This can involve arranging the funeral, applying for probate, collecting assets, paying debts and distributing the estate to beneficiaries.
You should appoint someone who is trustworthy, organised and capable of dealing with financial and legal issues.
In some cases, appointing more than one executor can be helpful. In other cases, it can create problems, particularly where there is a history of family conflict.
3. Review Your Will After Major Life Events
Your Will should not be treated as a document you prepare once and then forget.
You should review your Will if:
- you marry or separate;
- you divorce;
- you have children;
- a beneficiary dies;
- your financial position changes significantly;
- you buy or sell major assets;
- you start or sell a business;
- you receive an inheritance;
- you enter a de facto relationship;
- you have a blended family; or
- your executor is no longer suitable.
Regular reviews help ensure your Will continues to reflect your wishes and current circumstances.
4. Consider Family Provision Risks
In NSW, certain eligible people may be able to contest a Will by making a family provision claim.
This can include a spouse, de facto partner, child, former spouse, dependent grandchild, dependent household member and a person in a close personal relationship with the deceased.
When preparing your estate plan, it is important to consider whether anyone may have a potential claim against your estate. This is particularly important if you intend to exclude someone, leave unequal gifts to children, or provide more generously for one beneficiary than another.
A carefully prepared estate plan may not completely prevent a claim, but it can reduce risk and place your executor in a stronger position if a dispute arises.
5. Do Not Forget Superannuation
Superannuation does not automatically form part of your estate.
Your superannuation may be paid to your estate or directly to eligible beneficiaries, depending on the fund rules and any death benefit nomination you have made.
You should check whether you have:
- a binding death benefit nomination;
- a non-binding nomination;
- a reversionary pension nomination; or
- no nomination at all.
It is also important to ensure any nomination is valid and up to date. Superannuation can be one of the largest assets a person leaves behind, so it should be considered carefully as part of your estate plan.
6. Prepare an Enduring Power of Attorney
An enduring power of attorney allows you to appoint someone to make financial and legal decisions for you during your lifetime.
This can be very important if you lose capacity because of illness, injury or age-related decline.
Your attorney may be able to deal with your bank accounts, property, investments and other financial affairs. Because the role involves significant power, you should appoint someone you trust completely.
You should also consider whether to appoint more than one attorney and whether they should act jointly or separately.
7. Prepare an Appointment of Enduring Guardian
An appointment of enduring guardian allows you to appoint someone to make health, lifestyle and personal decisions for you if you lose capacity.
This may include decisions about:
- where you live;
- medical treatment;
- personal services;
- health care; and
- access to support services.
This document is especially important if there may be disagreement within your family about your care.
8. Consider Testamentary Trusts
A testamentary trust is a trust created by your Will. It can provide flexibility and asset protection for beneficiaries.
Testamentary trusts may be useful where:
- beneficiaries are young;
- a beneficiary has financial difficulties;
- a beneficiary is in a risky profession or business;
- there are concerns about relationship breakdown;
- a beneficiary has a disability;
- there are blended family issues; or
- you want to provide long-term control over inherited wealth.
Some of the benefits of testamentary trusts include:
- greater flexibility in how estate assets are managed and distributed after death;
- potential asset protection for beneficiaries, including protection from creditors, bankruptcy risk and relationship breakdown;
- the ability to protect young or vulnerable beneficiaries from receiving a large inheritance outright;
- potential tax advantages, particularly where income is distributed to minor beneficiaries;
- greater control over how inherited wealth is used and preserved;
- assistance with blended family arrangements, where competing interests may need to be balanced; and
- continuity of management where beneficiaries are not ready or able to manage substantial assets themselves.
9. Plan Carefully for Blended Families
Blended families often require careful estate planning.
Common issues include:
- how to provide for a second spouse while also protecting children from an earlier relationship;
- whether assets should pass directly or through a trust;
- whether a right of residence should be given;
- how superannuation should be dealt with;
- who should be appointed as executor; and
- how to reduce the risk of a family provision claim.
Simple Wills can create significant problems in blended family situations. It is important to obtain proper advice before signing estate planning documents.
10. Keep Records of Your Reasons
If your estate plan is likely to cause disagreement, it can be useful to record the reasons behind your decisions.
For example, this may be relevant where you:
- exclude a child;
- leave unequal gifts;
- make substantial gifts to one person;
- benefit a charity;
- benefit a new partner;
- forgive a loan; or
- make provision for someone outside your immediate family.
A carefully drafted statement of reasons can help explain your decision-making and may assist your executor if your Will is later challenged.
11. Think About Business Assets
If you own a business, your estate plan should deal with what happens to that business after your death.
You should consider:
- who owns the business;
- whether it is operated through a company, trust, partnership or sole trader structure;
- whether there is a shareholders agreement or buy-sell agreement;
- who can control the business after death;
- whether key person insurance is needed;
- whether the business should be sold or continued; and
- whether your executor has the skills to manage the relevant issues.
Business succession planning should be addressed separately from your basic Will.
12. Store Your Documents Safely
Your original Will should be stored securely.
Your executor should know where the original Will is held. If the original Will cannot be found after your death, this can cause delay and may create legal issues.
You should also keep important estate planning documents together, including:
- your Will;
- enduring power of attorney;
- appointment of enduring guardian;
- superannuation nominations;
- trust documents;
- company documents;
- insurance policies; and
- details of bank accounts and liabilities.
13. Avoid DIY Estate Planning Mistakes
DIY Wills and informal documents can create major problems.
Common mistakes include:
- unclear wording;
- failing to properly execute the Will;
- not dealing with all assets;
- accidentally revoking an earlier Will;
- failing to consider superannuation;
- failing to consider family provision claims;
- appointing unsuitable executors;
- not updating the Will after major life events; and
- creating uncertainty about gifts.
The cost of fixing a poorly drafted Will after death can be far greater than the cost of preparing the document properly in the first place.
14. Get Advice Before Transferring Assets
Some people transfer assets during their lifetime to try to simplify their estate or avoid disputes.
This should not be done without advice.
Lifetime transfers may have consequences for:
- stamp duty;
- capital gains tax;
- land tax;
- Centrelink;
- aged care;
- bankruptcy risk;
- family law risk;
- control of assets; and
- potential estate disputes.
Before gifting or transferring property, you should understand the legal and financial consequences.
15. Review Your Home Loan and Broader Financial Arrangements
Estate planning is a good opportunity to review your broader financial position, including your home loan, insurance, superannuation and ownership structures.
If you have a mortgage, it may be worth considering whether your current loan remains appropriate, particularly if your financial circumstances, family arrangements or asset structures have changed. This is especially relevant if you have not reviewed your loan for some time or have only ever dealt with one lender.
We do not provide mortgage or financial advice. However, clients who wish to review their lending arrangements may wish to speak with a qualified mortgage broker. For home loan enquiries, we recommend you contact Lenny Briffa of Orca Home Loans.
16. Communicate Carefully
In some families, discussing your estate plan can reduce confusion and conflict.
In other families, it may create unnecessary tension.
Whether you should discuss your estate planning wishes with family members depends on your circumstances. If you expect your decisions to be controversial, it may be better to obtain legal advice about how to record your reasons rather than trying to explain everything informally.
Final Thoughts
Estate planning is one of the most important steps you can take to protect your family, preserve your assets and reduce the risk of disputes after your death. If you need advice about preparing or updating your estate plan, PB Ritz Lawyers can assist you with clear and practical advice tailored to your circumstances.
