The importance of Estate Planning

Estate planning – No One Plans to Die. But You Should Plan for It.

Ensure your assets go to whom you want. And not to the ATO.

© 2024 First Samuel Limited

As the saying goes, the only certainties in life are death and taxes. In our advising experience, an ‘almost’ certainty is that most people avoid talking about death. Yet they don’t mind taking about taxes, especially reducing them.

Yet this reluctance to discuss our eventual demise can lead to messy and costly estate outcomes, which can also lead to protracted legal disputes.

Traps and errors

  1. Expecting that your superannuation balance will be distributed according to your will

Your superannuation assets (your ’member benefit’) are not part of your estate. They reside in a separate entity to you, a trust, and that entity is legally controlled by trustees. Those trustees have the power to decide who gets your member benefit.

To direct the trustees, you must complete a ‘death benefit nomination’, preferably a binding nomination. And if that nomination is non-binding, the trustee will have the discretion as to who receives the death benefit (subject to superannuation law).

  1. Jointly held assets are not part of your will

Assets you own jointly, such as a joint bank account or family home held as ‘joint tenants’ will automatically go to the other joint owner unless the asset is held as ‘tenants in common’.

  1. Assuming trust or company assets are part of your will

Assets held within family discretionary trusts and companies are not part of your estate. Hence, they cannot be distributed by your will. So, it is important to determine who owns or controls these entities upon your passing.

For a company, you may distribute the ownership of its shares via your will. For a trust, there are defined roles that determine ultimate control of the trust, which can be amended in accordance with the rules of the trust (its deed).

It should also be noted, however, that a loan by you to a family trust or a company is an asset held by your estate.

  1. Not taking tax into consideration especially when directing particular assets to a particular beneficiary

Firstly, some good news. Unlike some countries, we don’t have an estate tax (also called death duties). However, we do have tax consequences that need to be considered in your estate planning.

Taxation consequences may arise when beneficiaries eventually dispose of inherited assets and will depend on the nature of the asset and when it was originally purchased. For example, if you were to bequeath a property that was purchased prior to September 1985 (when the Capital Gains Tax rules were established), the cost base of the asset will be its value at the date of your death (so that only future gains will be taxed).

On the other hand, another asset of the same value purchased after September 1985 will transfer to the beneficiary the cost base at the date of purchase, with probably higher capital gains tax. (Special rules apply to the bequeathing of your principal place of residence).

  1. Not considering the use of a testamentary trust

A ‘testamentary trust’ is a trust that comes into operation on your death. Instructions to form a testamentary trust can be included in your will. It can be useful as a means to protect your beneficiaries and may provide tax benefits when the income from the assets held within the testamentary trust are distributed to beneficiaries (e.g. under concessional tax rules for those under age 18).

If the estate is large enough, then the will should consider providing for the ability to have multiple testamentary trusts.

Seven tips for estate planning

  1. You will want your testamentary wishes executed transparently, properly and effectively, so choose your executor(s) wisely.
  2. Think carefully about the needs of your beneficiaries, now and in the future
  3. Appoint an estate planning lawyer to guide you and prepare the necessary documents.
  4. Consider a Letter of Wishes – a non-binding document that helps to explain your will and some of your thinking behind the decisions you have made. It may also direct how some personal items should be distributed. This is also useful if your will is contested
  5. Consider a meeting with your beneficiaries to explain your will. This may be a difficult conversation, but it will be valuable
  6. Establish a safe place that contains a file of “where are my important documents,” including details of bank accounts and web-based accounts. And tell your executors where it is.
  7. Update your will regularly (at least every 5 years or upon the occurrence of significant events).

Your Private Client Adviser can guide you through these steps and also provide advice on how different decisions may affect investment and taxation outcomes.

Final Thoughts

You can avoid reality, but you can’t avoid the consequences of avoiding reality.

Death is a reality and avoiding its consequences may leave your estate in a mess, both financial and emotional, for your beneficiaries.

One of the most important high-profile cases that bears this out is that of Robert Holmes aCourt – at one time the richest Australian – who died without a will which meant his estate was divided in accordance with WA law leading to his wife receiving 1/3rd of the estate(with the remainder divided equally among their four children). The irony? He was a lawyer.

If you would like some guidance around these matters, please speak to your Private Client Adviser who can assist you to begin to formulate your wishes in collaboration with an estate planning legal professional.

Talk to us today.

The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.

First Samuel wealth management

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