Protecting the people who are important to you
\We all want to make sure our loved ones would be provided for if we weren’t around to look after them. Too many people, though, leave it all to chance.
Financial planning is a process that should take you and your family through all stages of your life, from the time when you start accumulating wealth right through to retirement. However, financial planning shouldn’t stop at retirement planning, but should include the smooth transition of assets to your family and beneficiaries in the event of your death.
Estate planning is an important part of the financial planning process that many people fail to adequately address. Neglecting estate planning can have potentially dire consequences on both your assets and your family.
What is estate planning?
The main purpose of estate planning is to make sure that the administration of your finances can be carried out in the most efficient way in the event of your death. Proper estate planning will mean that your estate will be well managed and your specific wishes carried out.
Do I need to consider estate planning?
Probably yes! If you have assets that you have accumulated e.g. cash, shares, other investments, a family home, superannuation and even your own business, then you should definitely address estate planning.
What are the benefits of estate planning?
The main benefit of estate planning is that your assets end up in the hands of those you wish. It will also ensure your beneficiaries don’t pay too much tax. Estate planning is a complex area that requires expert knowledge of the law.
While it is never pleasant discussing your will and powers of attorney, the taxation, superannuation, family and property laws in Australia are so complex, that it is far easier to discuss this rather than leaving it to your family.
What are the consequences of poor estate planning?
Quite simply your assets could end up somewhere you don’t want them to.
The outcome will vary depending on which state or territory you live in, with legislation dictating how your assets will be distributed in the event of death without a Will, or with an invalid Will.
A poorly constructed estate plan could also be open to challenge by someone who believes you’ve ignored them, or treated them unfairly. In a general sense, your spouse and children can challenge your Will, and so can anyone else who is financially dependent on you. In some legal jurisdictions, the ability to challenge a Will is even broader than that.
Consider the following
• Do you have a mortgage? Who would continue to pay this in the event of your death? Do you want to leave this debt to one of your family members?
• What are you leaving to your family and beneficiaries? You may think you are doing your family a favour by leaving them your assets but without proper planning, you could be increasing their income and therefore their own tax bill. Extra income could even lead to a beneficiary losing any entitlements they may have to Social Security benefits.
• Have you been divorced? Is there a chance that an estranged spouse could make a claim against a family asset?
• What about if a beneficiary sells an inherited asset or withdraws inherited superannuation benefits? There could be significant tax liabilities for your beneficiary in either of these situations. Even a donation to charity can result in a large tax bill.
Advice is the key
Everyone's situation is different. Even if you think your situation is straight forward, there could be implications that you may not be aware of so it is important to seek advice. You should not only be aware of your family situation but also of the different 'structures' you might have in place such as superannuation, business assets or family trusts. Some non-personal assets fall outside the provisions of a Will and need to be dealt with separately.
Estate planning should form a key part of your overall financial plan. There isn’t much point in working hard to create wealth if you don’t put in place adequate means to protect it.
This can include:
• establishment of a comprehensive personal Estate Plan;
• devising an appropriate Will;
• preparing Powers of Attorney and Letters of Instruction; and
• setting up discretionary testamentary trusts within your will where appropriate which can assist to:
- minimise capital gains tax,
- distribute your estate to your beneficiaries in the most tax efficient manner,
- minimise the possibility of challenges to your will,
- avoid family disputes and costly litigation,
- protect your estate from claims arising from the divorce or bankruptcy of your children, and
- protect your assets against creditors.
If estate planning is not currently part of your financial plan, or you would like us to review your existing plans, call your adviser today.
Disclaimer: This general advice does not take into account your objectives, financial situation or needs and before acting on this advice you should consider whether it is appropriate to your situation.
Lachlan Wealth Management is not authorised to provide specific advice in relation to estate planning issues and any advice will be provided by a specialist adviser as appropriate.
