Although our passing is not a pleasant subject to think about, estate planning is an important process as it can provide you and your loved ones with the comfort and security of knowing that your estate will be distributed in accordance with your preferences. Estate Planning should ideally be considered and addressed early, and reviewed at key intervals.
Estate Planning is the process of planning and documenting your wishes for the distribution of your assets (which may be both financial and sentimental) when you pass away. It can provide peace of mind and minimise stress and complications for our loved ones by helping to ensure that:
- sufficient assets are available for your family to meet your wishes
- beneficiaries receive the entitlements you intend them to receive
- any taxation associated with the transfer of assets is minimised
- beneficiaries with special needs are protected
- ownership or control passes to a beneficiary at the right time.
Key steps of estate planning
Have a valid Will in place
Over half of the Australian population does not have a valid Will – the document that sits at the centre of a comprehensive estate plan. A Will is an important document because without it, assets may be distributed according to local state laws and not necessarily in accordance with your preferences. While this approach may be acceptable for some people, if you have specific requests for the distribution of your financial and sentimental assets you may wish to have a Will in place.
Appoint an executor
Apart from documenting how and when you would like your assets to be distributed, another key decision is the appointment of an executor. Whomever you choose needs to have the capacity and willingness to take on the role, so it's not a bad idea to have a conversation with your nominee before setting that decision in stone. It's also sensible (and often overlooked) to let the executor know the whereabouts of the original copy of your Will.
Appoint a power of attorney
Another document that should be considered when putting together your estate plan is a power of attorney. While a Will deals with your assets in the event of your passing, your incapacity due to an accident or trauma is an entirely different matter. A power of attorney can be drafted to allow your nominee to perform a specific function for a limited period, or it can be 'enduring' in nature. This effectively means your power of attorney 'becomes you' and can make decisions on your behalf.
Guardianship of children
An important issue to work through for those with young children is who would become responsible for them in the unfortunate event that both parents pass away. It also highlights the importance of keeping your Will current.
Let's say you choose grandparents to be the guardians of your children. This is a common choice, however it’s important to consider the selection of your selected guardian carefully as the task may become more challenging for them as they get older and it may make sense to appoint an alternative guardian. It’s therefore wise to have a discussion with your nominated guardian to make sure they're willing to take on the responsibility. Additionally, it's usually appropriate to make sure your Will makes specific provision (most likely through a trust structure) for the cost of caring for the children, especially if your nominated guardian is someone you might not otherwise leave part of your estate to.
Other issues to consider
Other issues to address include what to do about beneficiaries who might be subject to some type of incapacity, and establishment of testamentary trusts. These issues can be complicated, and may require considerable thought and ongoing review.
Review your Will at key intervals
Only a properly written and executed Will ensures your wishes will be met. To ensure this, Wills should be regularly reviewed to cater for changing circumstances such as:
- marriage, which generally makes any existing Will invalid. On the other hand, divorce isn't so clear cut and its impact varies from state-to-state
- the birth of a child
- the marriage of an adult child.
