Getting started with Estate Planning: a practical approach
In this, the third article in our 3-part series on estate planning, we look at some practical tips on where to start. The previous two articles have only scratched the surface of this highly complex area and, once again, it is essential you speak to your accountant and engage a suitably qualified estate planning lawyer.
So, where do we start?
Children
If you have young children, you need to give careful consideration as to who will take care of them should something happen to you and your partner. Giving the guardianship of your children is probably the most important (and often-overlooked) thing you will do as part of your estate planning. Think about the age, values, lifestyle and financial resources of the people you would trust with this most important decision.
Personally, I am a huge advocate of life insurance here and my belief is that, if you have young children, you must have life insurance in place to ensure their future financial security. It is not that expensive and insurance companies do pay out on the policies despite the stories you may have heard.
Assets and Liabilities
Start by making a list of all your assets and liabilities and assigning a market value to each where you can. Also include specific items you may want to bequest to certain family members, e.g. that watch Joe always had his eye on or that necklace Lisa always admired.
Don’t forget to consider any life insurance policies you may have in place!
For the more complex items; e.g. shares you own in the family business or assets held within companies, superannuation or family trusts; you really need to speak with your accountant. This area often causes a lot of confusion among clients and their lawyers.
I find a good place to start here is listing the assets on a spreadsheet and then putting names against the assets of who you think should get them. However, you need to ensure this spit is done fairly to avoid future challenges to the Will.
Note: Jointly held property, e.g. real estate and bank accounts held jointly with a spouse, will automatically pass to your spouse and fall outside the terms of your Will.
Appointing an Executor
The executor or executors is the person(s) responsible for managing your affairs after you pass away.
Again, this needs serious consideration as the role – depending on the complexity of the Estate – can be quite demanding. From experience, if you are going to appoint more than one executor, have them in close geographical proximity if possible. Often documents require signing by all executors and having to mail them all around the country (in some cases the world) can be time-consuming and delay the administration of the Estate.
Beneficiaries
Basically: who gets what. In many cases this may be straightforward, e.g. everything goes to my spouse or everything is split equally between my children, etc.
However, in more complex situations, careful consideration is required from a practical point of view as well as a taxation standpoint.
The largest issue we see is in the rural sector where the main asset is often the family farm. Splitting this asset between three or four children is not practical from a commercial point of view. However, a huge financial burden can be left with the beneficiary of the farm (in having to pay out their siblings) and render the commercial operation unviable. For younger parents, this can be managed through life insurance but the ability to obtain life insurance in one’s twilight years is not available.
In the globalised world in which we live, many families are spread out around the world and more and more hold assets abroad. Each country has different inheritance tax laws and consideration of these needs to be made to ensure beneficiaries are not subject unnecessarily to inheritance tax issues. Allworths, through our Leading Edge Alliance affiliation of worldwide accountants, can assist in this regard.
Family business succession planning should also be considered in conjunction with estate planning. This is often left to the last minute when it is too late and early consideration should be made; whether it be to pass the business to a family member, or look at selling the business.
As mentioned in an earlier article, superannuation does not automatically fall under your Will and this needs to be considered.
If you have young children, you should also consider having a Testamentary Trust built into your Will.
Your Funeral
Give consideration to your funeral arrangements to assist your executor to plan your Will in line with your wishes. For example, consider whether you wish to be buried or cremated.
Enduring Powers of Attorney
An enduring power of attorney allows you to appoint another person to make decisions for you when you are unable to make decisions yourself. It allocates the responsibility to another person to make decisions on your behalf. This can include managing your financial affairs, making decisions about the way you live, or making decisions about your health care and medical treatment. Like guardianship and executorship, choosing the right person bears careful consideration.
Before Signing your Will
Let your accountant review it to ensure it includes all your assets and has been drafted in the most tax-effective way.
And finally… Pay for Proper Advice
As we’ve said in all these articles: pay for proper advice. Estate planning is a very complex area and you should have your Will prepared by an appropriately qualified and experienced professional. Over the years, I have seen plenty of poorly drafted Wills which simply do not achieve what was desired.
At Allworths, we work together with a number of great lawyers who can provide the proper advice. Contact us if you would like any more information on estate planning.
The advice in this newsletter is intended to be general in nature and does not take into account your personal circumstances. Before implementing any of the strategies discussed, we recommend you speak to your licenced financial advisor or solicitor.
Allworths Wealth Management Pty Limited (AFSL 457155) is the Wealth Management arm of Allworths Chartered Accountants. For further information please contact us on (02) 9264 6733 or email growth@allworths.com.au.
Further Reading on Estate Planning
