Why is Estate Planning Important?
Don’t risk it – estate planning is important.
The great estate
No-one wants to think about death in the prime of life. Yet it’s important to decide what will happen to your assets.
It is important to develop an effective estate plan to ensure your loved ones will be properly looked after. First of all, it makes sense to put a plan in place leaving instructions about your legal and medical preferences. An estate plan includes your will. It can include any other directions on how you want your assets handed out after your death. If you become unable to make your own decisions, a good estate plan can include a variety of documents to deal with any issues that arise. These govern how you will be cared for, medically and financially.
Your Will is likely to be the primary, though by no means only element of your estate plan. If you don’t have a valid will in place, an administrator appointed by the court pays your bills and taxes from your assets. They will then disburse the remainder of your Estate based on a predetermined formula. Because of this, the distribution of your assets might not be how you intended. If you die intestate and don’t have living relatives, your estate is paid to the state government.
Letter of wishes: can be read in conjunction with your Will. Above all, though not legally binding, it provides the ability to guide executors and beneficiaries of your estate on issues which are important to you.
Superannuation: Your superannuation does not automatically form part of your estate in the event of your death. It often does in NSW but if you reside elsewhere it may be appropriate to implement a binding super death benefit nomination. As a result, you can be confident that your super will be dealt with in the way you want. If there are no binding death nominations, then the trustee of your super fund will decide how the benefit is to be paid.
Power of Attorney’s in Estate Planning
Appointing someone as your Power of Attorney gives them the legal authority to look after your affairs on your behalf. Powers of Attorney are an important part of any estate planning. Depending on which state or territory you are in: they can refer to just financial powers. Or they might include broader guardianship powers.
A general power of attorney is where you appoint someone to make financial and legal decisions for you. This is usually for a specified period of time, for example if you’re overseas and unable to manage your legal affairs at home. This person’s appointment becomes invalid if you lose the capacity to make decisions.
An enduring power of attorney is where you appoint a person to make financial and legal decisions on your behalf if you become unable to do so.
A medical power of attorney only makes medical decisions for you if you lose the capacity to make your own decisions.
You can set up other documents to help legal appointees and family in relation to your estate planning, including:
An enduring power of guardianship that gives a person the right to choose where you live and decide your medical care and other lifestyle choices, if you become unable to do so.
An anticipatory direction records your intentions about medical treatment in the future, in case you become unable to express those wishes yourself.
Testamentary Trusts in Estate Planning
Testamentary Trusts are usually set up to protect assets. In Estate Planning they are a mechanism by which an inheritance can be kept separate from the personal assets of a beneficiary. In effect, they provide benefits in terms of asset protection as well as tax advantages.
Here are some reasons to create a testamentary trust:
- The beneficiaries are minors (under 18-21 years old)
- The beneficiaries have diminished mental capacity
- Trusting the beneficiary to use their inheritance wisely is a concern
- A divorce settlement could split family assets in the future
- You do not want family assets to become part of bankruptcy proceedings
The documents you choose to draw up will depend on your situation, and the responsibilities you are happy to entrust to others. It is important to get legal advice before you do anything.
ASIC publish a useful guide about Estate Planning too.
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