Do you have a castastrope plan?
Estate planning ensures your wishes are documented so they can be carried out in the event of you becoming disabled or passing away. This ensures you exercise control over your assets so they go to your intended beneficiaries at the right time.
The following are some important general points to consider within most estate plans.
In the event of your death a Will ensures your estate is distributed according to your wishes. If you die without a valid Will (intestate) your estate is distributed in accordance with a State Government prescribed statutory formula. Dying intestate can result in a time consuming and expensive process for your family.
Dying intestate requires a relative to apply to the court to be appointed as Executor, a process known as applying for “letters of administration”. This adds unnecessary time and costs to an emotionally challenging process.
Wills and other associated documents should be kept up to date and in a safe place known to your Executors. They should be reviewed regularly to reflect changes to your personal circumstances or changes in legislation that may affect the legality and/or the effectiveness of your Will.
It is important at the time of drafting a Will that your mental capacity cannot be questioned, as Wills may be challenged on these grounds at a later date.
Often there is no Will, and even if a Will is in existence it may unintentionally create a tax liability that could have been avoided or minimized with appropriate estate planning.
Assets that make up your estate include most if not all assets held in your name. They do not include assets which are jointly held with another person. These assets revert automatically to the surviving joint tenant.
Some important issues with Wills:
Bequests are specific items you own that you intend to pass to specific individuals through your Will. These can include items such as paintings, jewellery, cars etc.
Special care needs to be taken with specific bequests regarding both the clarity of your intentions and the ability of the estate to provide the bequest.
Assets Owned as Joint Tenants
Assets owned as joint tenants will automatically pass to the survivor, if one member of a couple should die and be survived by their partner for more than 30 days.
Accordingly, it is unlikely that any jointly owned assets will be distributed according to the Will of the first of a couple to die.
Assets Owned as Tenants in Common
Assets owned as joint tenants see each party owning their specific share of the asset.
Upon the death of the first person, their estate will take ownership of their share and the other owners share is unchanged in its ownership.
An Executor’s role is extremely important in the administration of your estate and as such it is vital that you are confident in whom you appoint. An Executor is responsible for:
- The collection of assets within the estate and their distribution in accordance with your Will
- Payment of debts incurred by the estate
- Maintenance of financial records in relation to estate transactions including in many cases submission of your final tax return
In this regard it is essential that the Executor understands your wishes, your family’s needs, has some degree of business acumen, is honest, and can be reasonably expected to outlive you.
Careful consideration should be given to the appointment of an independent trustee, such as a solicitor, statutory trustee company or the Public Trustee, as your Executor. This is especially relevant should your current Executor predecease you.
Power of Attorney
A Power of Attorney is a formal document one person (called the donor) uses to appoint another person (called the Attorney) to act on their behalf. Once completed the attorney may perform legal acts on behalf of the donor.
As with preparation of a Will, a donor must have sufficient mental capacity to appoint an Attorney.
While an Attorney has the power given by the donor to act on behalf of the person, the duties must be carried out in accordance with the instructions or as the donor would be expected to act. This distinction is important to ensure that the attorney’s actions are not challenged in a court of law.
A Power of Attorney can be general in nature. This does not limit the action the Attorney can take on behalf of the donor.
A Power of Attorney can be limited by action, in which case there are only certain actions which the Attorney may undertake on behalf of the donor. It can also be limited by time, so that the Power of Attorney is only valid for a specified time period.
A General Power of Attorney expires immediately if the donor becomes mentally unable to manage their affairs. An Enduring Power of Attorney does not expire in these circumstances.
Depending on the law prevailing in a particular State or Territory, there are the following types of Power of Attorney:
- General Power of Attorney
- Enduring Power of Attorney
- Enduring Power of Guardianship
- Medical Power of Attorney
General Power of Attorney
A General Power of Attorney grants the Attorney the authority to act on behalf of the donor in any matter while they still have mental capacity. A common example is when a donor grants an Attorney power to act on their behalf while they are outside the country.
Enduring Power of Attorney
An Enduring Power of Attorney allows your financial affairs to be managed by a person of your choice, but comes into force in the event of accident or illness that impairs your mental capacity.
An Enduring Power of Attorney is an essential document, particularly for people who are finding it increasingly difficult to attend to their personal affairs. An Enduring Power of Attorney will remain valid even after the donor loses their mental capacity.
Enduring Powers of Attorney are powerful and effective instruments. They allow for the person given the Power of Attorney to deal with your major assets or bank accounts in the event of accident or illness that preclude you from tending to your personal needs.
An Enduring Power of Attorney should only be given to trustworthy person. Extreme care should be taken to ensure the appropriateness of granting such power as it can result in financial and legal problems if used inappropriately.
Enduring Power of Guardianship
In certain States an Enduring Power of Guardianship can be prepared. An Enduring Power of Guardianship enables the donor to appoint a guardian to make lifestyle decisions (such as where the donor lives and works) in the event of the donor losing capacity. The donor can express preferences in relation to lifestyle decisions in the document.
At law, no person has the legal authority to make lifestyle decisions for another adult, regardless of the relationship, unless they hold an Enduring Power of Guardianship.
Medical Power of Attorney
A Medical Power of Attorney grants the Attorney the ability to make decisions about the health and medical treatment of the donor, the most common example of which is when the donor may be in a coma after an accident.
Medical Access Authorities
These documents provide authority for an individual’s medical records, usually confidential between doctors and patients, to be made available to the person or persons authorised. This may be valuable if a loved one would prefer a second medical opinion in any given circumstance.
Superannuation Nominated Beneficiaries
For your superannuation benefits to not form part of your estate in the event of death, it is recommended that you sign a binding nomination form. This specifies who will be the recipient of your superannuation benefits.
It is important to note that these must be reviewed every three years, and there can be important taxation consequences of the choice of beneficiaries.
A nomination made by a superannuation fund member that is not binding allows the superannuation fund trustees to exercise discretionary power to determine how the benefit is paid and to whom. This type of nomination is referred to as non-binding.
The signing of a binding nomination removes the ability of the superannuation fund trustee to allocate the benefit. They must act in accordance with the binding beneficiary nomination, as long as the binding nomination is legal and binding at the time of death.
A testamentary trust is a trust created pursuant to a Will and is created with assets from the estate.
It is often a discretionary trust.
A testamentary trust has a number of significant advantages for a testator (creator of the trust) and the nominated beneficiaries, such as:
- Significant taxation advantages in terms of income splitting
- A degree of protection of the bequeathed assets from any financial or other difficulties that the beneficiaries may suffer
- A degree of flexibility and divisibility with the distribution of estate assets
The terms of the testamentary trust are often drafted along with the Will. These terms can limit the ability of any of the beneficiaries to control the activities and investments of the trust or it can give the beneficiaries significant control.
All of the above information is general in nature and it is important that you seek out a qualified legal practitioner before preparing any estate planning documents.
Disclaimer: This document has been published by Finesse Advisers Pty Ltd ABN 30 628 007 054 Contact Address Information: PO Box 840 Penrith NSW 2751 Authorised Representative No 1267025 of FYG Planners Pty Ltd ABN 55 094 972 540 Contact Address Information: Level 1/41 Mount Street Burnie TAS 7320 for use in understanding general financial planning concepts related to financial planning.