posted in: Building Wealth
The importance of having an up to date Will
Have you thought about what will happen to your assets when you die? Or if you have younger kids and something happened to both parents who would take care of them?
If you don’t put safeguards in place and make your wishes clear now, it may be too late to ensure your wishes are respected when you pass away.
There are several undesirable scenarios which could emerge without the right estate plan in place:
- If you and your partner both pass, someone you haven’t chosen may end up becoming responsible for your kids
- If you and your partner are in an accident, someone you haven’t chosen may end up making medical decisions about your life
- If you haven’t provided clear direction as to where your assets should go, opportunistic family members could try to seek a piece of your estate which wasn’t intended for them
Putting these potential scenarios aside, a clear and up to date estate plan can often make the difficult process of losing a loved one a lot less complicated for those family and friends who are in a state of mourning.
If you want to maintain some control over what happens after you pass away, you need to put an estate plan in place now.
What is included in estate planning?
There are several components to consider when it comes to estate planning including:
- Testamentary trusts
- Enduring Power of Attorney
- Enduring Guardian
What’s included in a Will?
The first step in estate planning is to establish a Will. A Will is a legal document which records your instructions for how your estate is to be distributed, who will care for your children (guardianship) and who will be the executor of your estate.
Your Will will include:
- Details of your assets including real estate and other investments, business interests, bank accounts, personal items or heirlooms and who is to receive them
- Instructions for your funeral including any religious or cultural requirements
- A nominated person to become the legal guardian for any children under 18 years if required (guardianship)
- A nominated person to become your executor when you pass away. An executor is responsible for the financial matters of your estate after you die. They will ensure any debts are paid and your assets are distributed on your behalf. Ideally this person will have some financial nouse to carry out your wishes and will be someone you trust
- Details of if the estate includes a testamentary trust (commonly known as a Will trust)
What’s a testamentary trust?
One option for ensuring your assets are distributed as intended upon death is to include a testamentary trust (commonly known as a Will trust) that is automatically established upon death. Instead of the assets being distributed to beneficiaries personally, the assets can be held in a trust which can lead to greater asset protection and tax benefits for the surviving beneficiaries.
For example, if the proceeds of a share portfolio held outside superannuation were to be transferred directly to a surviving spouse who has young kids (under 18), then the surviving spouse will pay tax at their marginal tax rate for any future income received from the share portfolio. If however the share portfolio was transferred to a testamentary trust, the surviving partner could draw down on the income from the share portfolio under their kids’ names to reduce the amount of tax paid. Minors who aren’t earning any other income aren’t taxed until their income exceeds $18,200.
What is the role of a Power of Attorney, Enduring Power of Attorney and Enduring Guardian?
One consideration, which is important to factor in, is who will make decisions on your behalf while you’re still alive but losing capacity.
A Power of Attorney will handle financial matters on your behalf like paying bills or managing money whilst you still have capacity. An example of this situation could arise if a person was posted overseas for their job, then they may want to provide a family member or friend with the ability to sign off financial matters whilst they’re away. This type of authority ceases if the person granting the authority ever loses capacity to make these type decisions or they wish to revoke the authority for any reason.
An Enduring Power of Attorney operates in a similar way as a standard Power of Attorney, but continues even when a person no longer has full capacity. Capacity refers to when your decision making ability is considered to be impaired. An example of this would apply when someone finds out they are suffering from Alzheimer’s Disease and their doctor deems they are no longer fit to make financial decisions. An Enduring Power of Attorney is restricted to only making financial decisions on a person’s behalf, however an Enduring Guardian can make decisions on a person’s lifestyle, accommodation and medical requirements.
What is the role of a Guardian?
A Guardian (note, this is different to an enduring guardian) is someone who will take care of your children and their needs in the event that you, and your spouse, pass away. When choosing a guardian, you should keep in mind that:
- The guardian will be responsible for all of the daily and long-term care of your children
- All lifestyle decisions will be made for your child by the guardian you select
- The guardian will ensure that your child is housed, clothed, fed and educated
- The guardian will be responsible for the financial needs of your child
Because guardianship is a huge responsibility, it is important you discuss it with the people you are considering ahead of nominating them in your Will.
Putting an estate plan in place is an essential piece of the puzzle for protecting your wealth and ensuring your family and loved ones are taken care of. Talk to us today about how to get the ball rolling on your estate planning.