Estate Planning can be a complicated area and it’s impossible to create a one-size-fits-all approach. However, there are a few basic rules and tips that can help. Following are my top do’s and don’ts for estate planning.
Do have an up-to-date will; don’t leave it at that
Most financial planners know that a will is just one part of a comprehensive estate plan – and in some cases, a relatively small part.
A will deals only with estate assets – assets owned directly by the will-maker. It doesn’t deal with non-estate assets; that is, the assets that may be controlled by the will-maker but not owned.
This may sound quite straightforward but it isn’t always. In fact, it’s not always easy to know which assets are owned and which are just controlled.
Take the example of the Flynn family. David is aged 58 and Donna is 56; they have three children, all in their 20s. Their wealth position is:
Home owned as joint tenants
Investor property owned as joint tenants
David’s super in SMSF
Donna’s super in SMSF
Life insurance in super
Family trust investments
Mortgage debt on home
Mortgage debt on investment property
So, in the event of the death of either David or Donna, which of these assets pass via the will?
The answer is, none of them. When Donna or David die, none of these assets will come into their estate and therefore cannot be directed by a will.
The reasons are:
1. The real estate is owned as joint tenants, so the survivor automatically inherits. Joint tenants cannot pass their interest via a will
2. Superannuation is held in a trust environment and the trustee of the super fund decides to whom and how a super death benefit is paid. To ensure the death benefit passes to a preferred beneficiary, they would need to have in place a binding death benefit nomination
3. The same rules apply to any life insurance held in super
4. Assets held in a family trust are owned by the trustee of the trust. Therefore, it is important to agree upon and document who will control the trust following the death of either David or Donna, as the ultimate power lays with the control.
Do have a comprehensive estate plan
The essential documents in an estate plan include:
It’s worth noting that while for most clients, it will be best to have a binding death benefit nomination for superannuation, in some cases it’s preferable not to, so the money doesn’t come into the estate. For example, a death benefit pension to a spouse can be paid by a super fund. Therefore David and Donna may prefer the super death benefit to remain in the super fund in order to pay the survivor a pension.
This is a good example of how it is impossible to have a ‘one size fits all’ approach to estate planning.
Do document the things that are important
An estate plan must be able to stand on its own and therefore needs to deal with any contingencies or concerns. Once the will-maker is dead, it’s impossible to make any further changes or adjustments! So they need to get it right now, and this is where professional advice can be worth its weight in gold.
For instance, any unwritten understandings between couples could be included. As an example, Donna and David both agree that after they have both died, they want their remaining wealth to go to their children to enjoy, and also to any future generations. And they don’t want their children to squabble over their will.
Rather than take it for granted their children also know this and agree with it, it’s a good idea for Donna and David to put it in writing.
In addition, they can’t assume anything – that their children will behave in the way that they want them to, or that their children will automatically know or understand why Donna and David made the decisions that they did. If anything needs explaining, it’s best to do it in person, and reinforce it by leaving a document in the estate plan to account for the choices made.
Don’t try to rule from the grave
The over-riding aim of most estate plans should be to protect loved ones, not rule from the grave. This is why it’s important to document any understandings or agreements.
If necessary, also put in place strategies to protect children from themselves, and also from the financial effects of failed relationships.
One approach we have started using is an Inheritance Protection Agreement (IPA).
The way an IPA works is that firstly, Donna and David agree that if, after the death of the first of them, the surviving spouse was to begin a new relationship, then the survivor will have a financial agreement (commonly known as a ‘pre-nup’) with the new partner to prevent any claim.
Secondly, Donna and David make it clear their wish is for each child to have a long and happy relationship; however as a matter of principle they believe that any inheritance should not be carved up if there is a relationship breakdown. They therefore direct that after their deaths, their children should enter into an IPA with any partner to exclude any claims on inheritances and, if the child does not have the benefit of an IPA, other protection provisions are incorporated in the wills.
Do help children if possible
It’s becoming increasingly common for parents to help their children financially during their lifetime – for instance, helping them buy their first home, or get a business off the ground.
While it is a good idea to help children if there is capacity to do so, it’s best not to gift the money but rather to lend it. This should be carefully documented so that the loan can be recalled if the parents need the money later in life, or if the child goes through a relationship breakdown.
It’s important that other children aren’t left feeling disadvantaged as a result of assistance given to one child, as this could lead to bad feeling in the family, and potentially to challenges on the estate. Provisions can be placed in the Will to take into account any gifts or loans in the ultimate distribution to the children.
Don’t put it in the ‘too hard’ basket
Understandably, no-one likes to think of their own death or incapacity.
But when clients are refusing to think about their estate plan because they say they aren’t planning on dying any time soon, I only need to remind them of Princess Diana, Heath Ledger or even James Dean or Buddy Holly, who all died before age 40.
It’s never too soon to have an estate plan, and anyone who has superannuation, children or owns their own home, has enough assets to make it worthwhile.
Likewise, an estate plan is not a ‘set and forget’ approach. It needs regular reviewing and updating to ensure it is still up to date. The birth of a grandchild, the purchase of a new asset, or a relationship breakdown, could all make the existing estate plan incorrect.
By Robert Monahan
HLB Mann Judd Sydney
June 8, 2017
For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.
Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.
Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:
Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.
Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.
Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.
George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).
Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.
Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.
She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.
Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.
Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.
Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.
He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.
Paul's professional qualifications are:
Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.
Client Services Manager
Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.
Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.
He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.
Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.
Jenny is a University of New South Wales graduate who joined the team as an Administration Assistant. She is keen to put her customer service and organisational skills to use, making sure day to day operations run as smoothly as possible.
Outside of work, Jenny focuses her efforts on karate and ice hockey. She can often be found coaching and practicing karate at her alma mater. The rest of her time is spent at one of Sydney’s many ice rinks playing, practicing, or officiating ice hockey.
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