Plan for the best

Money Mazagine in October 2019 asked Tony Davison from Pride Advice to answer questions about estate planning in the above article “Plan for the best”. Here is what he had to say:

At the very minimum, what should an estate plan include?

It requires a solicitor who has expertise in estate planning.

The reason you need an expert is demonstrated in some of these estate issues I’ve encountered:

  • Individuals seeking to cut children out of wills following a falling-out over a new life partner they’ve met;
  • Clients who’ve discovered their parent’s new partner has cut them out of the will;
  • People who’ve told me about family members kicked out of their lifelong home due to the estate claims from the children of their (now deceased) second wife – it’s frightening (and completely avoidable);
  • Expensive legal fights among families following the death of a beloved; and
  • Coming into a large sum of money.

A basic estate plan should include a will, enduring power of attorney, power of guardianship and death nominations for your super. More structured estate plans will include consideration for testamentary trusts. Your state’s local law society can assist you to identify a suitable legal expert in the area.

How should people treat superannuation in estate planning?

Superannuation is not an estate asset. Within super, a document called a binding death nomination directs your super to nominated parties or your estate – make sure you have this in place (just contact your super fund, and it will tell you if it’s in place).

With good planning, superannuation is unsurpassed as a vehicle to transfer wealth within your family, or to the next generation.

If your kids are adults over 18, some planning actions can reduce potential taxes on your super death benefit received by your kids. With specific advice, for individuals retired and under 65, a series of withdrawals and contributions to super can reduce taxes on your super death benefit in what can amount to a material tax saving for your family. This is complex and requires expert advice.

Similarly, if you hold life insurance within your super, in the event that you pass away and your kids (aged over 18) inherit the life insurance payout from your super, they will probably also be heavily taxed. Some simple planning can eliminate this potential impact.

What are the most common mistakes people make in their estate plan?

There are three common issues.

The first is assuming a will is a will. Poorly drafted, corner shop, online or newsagent wills are insufficient for the purpose and are open to contest. Seek out your local law society to help identify a legal expert in the estate planning area to assist you.

The second is to think an estate plan is just a will. A will directs everyone else when you’re dead. But substantial benefit can be gained by you when you’re alive by appointing an enduring power of attorney or enduring power of guardianship. It’s incredible the impact that a lack of direction can have on families when someone is incapacitated and the family has to decide collectively what’s next for someone who’s unwell. Where powers are not in place, often the family has to apply to a court to take control of someone’s affairs – an inconvenience at a time when they’re least able to contend with it.

Lastly is to engage others in the estate planning process. Include your accountant, financial adviser and your family and ensure they know what you want. If conflict between family is likely after you die, do as much as you can to lance the issues when you’re around to call the shots.