Creating a will or an estate plan
None of us want to think about dying, but we all know that it is inevitable. We also know that being responsible, getting our financial estate plan organized, is important. If something does happen sooner than expected, then your family is looked after. A well planned estate guarantees that your family will be looked after in a simple and sensible way.
45% of people don’t have a will
Without a will, if a family member passes on, it could be very costly for the surviving family, as well as very difficult to have their estate settled.
If you die without a valid Will, you are said to die intestate. The Queensland laws of intestacy are outlined in Part 3 of the Succession Act 1981, which sets out the entitlements of the next of kin of an Intestate person.
You can have these laws decide who gets what from your estate. Alternatively, you can prepare your will carefully, and be specific about what you want to have happen. It is much easier for your family if you have a will.
What’s involved in estate planning?
1. Make a will
- Ensure there is a detailed and legally binding document that says “In the event of my death, this is what I would like to happen with my finances and belongings”.
- Consider what could happen in the event of a challenge to the will (particularly relevant for mixed families)
- If there are children from a previous marriage or a spouse from a previous marriage, ensure the will is absolutely clear on how/if these individuals benefit.
- Assuming that a couple each appoint the other (if alive) as their executor, then the only real questions are:
a. who is to be the reserve executor and trustee if the spouse does not survive?
b. who is to be guardian for the children (that is, who will look after the day to day care of any children under 18 if the spouse does not survive), and
c. who is to benefit from the will if there is no surviving spouse or children?
2. Consider an Estate Plan
Clients with young children need an estate plan in addition to a will. This is very important.
Case study 1:
I once helped a couple create an estate plan. When the couple died in a tragic car accident, their children were immediately looked after with a tax-free income that continued until they became of age. The children also received a lump sum payment when specified by their parents. It was all clear in the Estate Plan. Contrast this with the next case study.
Case study 2:
Martha died at age 45 of cancer. Her life policy was set up to give her daughter half a million dollars (plus earnings) when she turned 18. The daughter’s father came to me six months before her 18th birthday. He was absolutely terrified. The daughter was still very immature, especially when it came to money management. Martha’s husband could see his daughter spending the entire policy benefit, blowing the lot.
There was no estate plan. Nothing could prevent the young girl from receiving the money when she turned 18. Martha could have planned a ‘Testamentary Trust’. This would have put the money in trust for her daughter – and the capital value (lump sum) would have been protected – until she was emotionally ready to manage that large payment.
3. Look at your superannuation
Another important part of estate planning is superannuation. Superannuation, technically, is not an asset. It doesn’t come under the will. Dealing with how superannuation is passed on should be incorporated in any good estate plan.
Five Estate Planning Tips:
1. Have a current will
Make sure that you have an up to date will and that the will states exactly what should happen if you were to die today.
2. Deal with extended family in your will
This means family from remarriage, children from a previous marriage or children outside marriage. Make sure you receive professional advice on drafting the will and that there is no room for your extended family to claim more than you want them to get.
3. Plan your super
Make sure your superannuation is dealt with separately within your estate plan.
4. Consider a testamentary trust
If there are children under the age of 18 or children who are incapacitated in some way, special provisions should be made for them in your will.
5. Look at your tax
Make sure that the tax ramifications of assets and superannuation have been carefully thought through. Your lawyer and/or accountant should be consulted about the tax ramifications of your will.
Read more about estates here: McMasters’ The Financial Planner as an Estate Planner .This manual is written by Dover and is primarily aimed at financial planners. We have found it works just as well as an explanatory document for clients.