Retirement Planning 1

Estate Planning for You, Your Family and Your Business

Estate Planning

It’s frightening to know that over 50% of the Australian adult population do not have estate planning in place. The most common reasons given by those who don’t are along the lines of “I just haven’t got around to it”. Often, it’s their view that they don’t have enough assets to warrant a Will.

The reality however is that everyone over the age of 18 should not only have a Will, but at the very least, two other estate planning documents as well. They are an Enduring Power of Attorney (EPOA) and an Advance Care Directive. So why? And what are these documents?

Wills

As part of the overall estate planning process, a Will is designed to ensure that your assets are properly distributed to the people that you care about.

Without a Will, your wishes have no way of being known, and the administration of a deceased estate without a Will can be a complicated and expensive process for your next of kin.

In simple terms, there are two types of Wills – “simple” and “complex”.

A simple Will needs to contain some basic information. You as the testator (the person writing the Will) need to name a personal representative, or the person who will make sure that the Will instructions are carried out as written (the Executor). Then you name the people (called beneficiaries) who will receive your stuff (money, property, land, etc.)

A complex Will is often required to address issues such as:

  • Changing family situations (e.g., blended family)
  • Business ownership
  • Testamentary trusts
  • Protective trusts for incapacitated beneficiaries
  • Guardianship clauses
  • Maintenance of minor children
  • Provision for the children of prior marriages or relationships.

Did you know that there are some things that you can’t give to beneficiaries via your Will?

Your Will can generally only deal with assets that you own in your sole name or that you hold as “tenants in common” with other owners (e.g., land or property).

If you own real estate with another person as ‘joint tenants’ and you die, the property will transfer to the other joint tenant, and not form part of your estate. The same applies for shares or bank accounts in joint names. In both instances, this is very often the case with property and assets jointly owned by marital partners and are not assets that you can gift by your Will.

A properly constructed estate plan not only addresses those assets that pass via your Will. Other assets such as those held within a Trust or company that is not fully owned by you, or held within say, an SMSF (Self-Managed Super Fund) can’t be gifted through your Will.

You may be able to nominate in your Will a person to take control of the Trust however, your Will cannot distribute trust assets.

Of special significance is any superannuation asset. Superannuation is an asset that may or may not form part of your estate after you die. There are factors that will determine the outcome. For example, the type of Death Benefit Nominations (if any) made to the fund Trustees.

Depending on the rules of the fund, benefits can be made in the form of a lump sum, a pension/income stream (also subject to regulations) or both. A member can execute a “Binding Death Benefit Nomination” (BDBN) which directs the fund Trustee as to where and how (depending on the terms of the Trust Deed) proceeds are to be paid on their death.

Some of the advantages of having a BDBN include:

  • Keeping proceeds out of the estate and reducing the risk of a claim on the estate being made by a disgruntled beneficiary
  • Certainty that proceeds will be paid to the intended beneficiary
  • Minimising payment delays

It is vital to get appropriate advice from your financial advisor regarding the type of superannuation fund you have, what rules govern the fund regarding the treatment of your superannuation death benefits along with any nominations. The taxation implications pertaining to your death benefits should also be considered.

Accounting for all these issues will then allow you to make informed decisions for your super death benefits as part of your overall estate planning strategy.

If you run your own business, a significant part of your wealth may be tied up in the business. Your business assets may be held in various structures such as trusts, companies or partnerships, or even an SMSF.

Careful consideration should be given to who will take control of the entities that hold the business assets after the death or incapacity of a key individual in the business. Successful continuation of the business can be put in jeopardy if appropriate succession planning has not been put in place.

Failure to consider the impact of your death or incapacity on your business can also create problems for your personal estate. In particular, if there are loans between you and the business or if you have provided personal guarantees for business loans.

In consulting with your financial advisor, here are some considerations to make regarding your superannuation and/or business assets. For instance:

  • Do you have an up-to-date Binding Death Benefit Nomination in place for your superannuation fund?
  • Who do you wish to control your business, investment entity and assets?
  • Have Trust Deeds been reviewed or updated recently?
  • Have you reviewed your Company Constitution?
  • Are your business insurances up to date?
  • Do you have a buy/sell or other business succession agreement in place setting out the process if a business partner is incapacitated or dies?
  • Have distributions been made to you from a discretionary trust that remain unpaid, or have you loaned or contributed substantial amounts to a trust?

Power Of Attorney

A Power of Attorney (POA) is a legal document, which permits an individual to act on your behalf, when you can’t make decisions for yourself. This can include when you are travelling overseas, are hospitalised or impaired. You can appoint one or more people to look after your legal and financial affairs. This can help to ensure that they are managed in your best interests.

You can limit the powers the person has. For example, their ability to sell your property or manage your business affairs.

An Enduring Power of Attorney (EPOA) is a Power of Attorney document designed to continue to operate if you lose your mental capacity.

Both POA’s and EPOA’s give a person the power to act for you in legal and financial matters.

Advanced Care Directive

If you become mentally incapacitated, an Advanced Care Directive is a document that allows you to appoint a person, known as a “Substitute Decision Maker,” permitting them to make certain lifestyle and welfare decisions for you.

The Advanced Care Directive will include decisions in relation to lifestyle and accommodation. It may also include directions in relation to the medical treatment you are to receive should you become terminally ill.

You must sign an Advanced Care Directive whilst you are of sound mind. It will come into force if you are no longer able to manage your affairs due to loss of mental capacity.

Your financial advisor can assist you in ensuring that all relevant aspects of estate planning are addressed. It is likely that your advisor will require the services of other specialists to ensure that your estate is distributed correctly.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. The advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

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