Estate Planning, more than just a will.


Estate Planning involves much more than just having an up to date will. It is important to ensure that your assets are distributed in the most effective manner and without adverse tax consequences for your beneficiaries.

This week we focus on the top 3 reasons for having an estate plan as well as
joint tenancy and tenancy in common, assets owned by a company held in trust
as well as Superannuation & Life Insurance Death Benefits.

Death may be one of the two certainties in life – the other being taxes – but another could easily be the reluctance many have towards dealing with this inevitable event.  Do you know how your loved ones will be cared for if something happens to you?  If the answer is “no”, then it’s time you took steps to put your affairs in order.
There are many good reasons for having an estate plan, these are just the top three:

  1. Not wanting to add to your family’s anxiety or hardships while they are trying to deal with their loss.
  2. Your hard-earned assets to end up in the wrong hands or to cause friction between those names in your will, simply because your intentions weren’t properly documented; and
  3. Your beneficiaries to pay more tax on their inheritance than they are obliged to.

That’s why proper estate planning, including having a will and keeping it updated, is essential.
In Australia, if you die without a valid will – known as dying ‘intestate’ – a court-appointed administrator could be charged with distributing your assets and even deciding who looks after your children if they are under 18. He or she may follow a pre-determined formula that could lead to a very different outcome to the one you wanted, which could cause delays in settling your estate. Studies show that 45 per cent of Australians don’t have a will so if you don’t have one, then it’s time to join the 55 per cent.
Drawing up a will is far more complex than merely deciding to whom you want to leave your assets to. An understanding of which assets pass into your estate is required and this is why seeking advice is important.

For instance, not all the assets you own or control can be dealt with under your will, including:

  • assets owned as a joint tenant;
  • assets owned by a company or held in a trust; and
  • superannuation death benefits or life insurance proceeds that are paid directly to a beneficiary rather than to your estate.

Joint tenancy and tenancy in common.
Jointly owned assets or property can be held in one of two ways – either as joint tenants or as tenants in common. If an asset is held as joint tenants, on your death, the surviving joint tenant automatically acquires ownership of your share of the asset (‘rule of survivorship). The asset won’t form part of your estate and can’t be dealt with under your will.  If an asset is held as tenants in common, your share of the asset (i.e. 50%) will form part of your estate and can be specifically dealt with under your will.

Assets owned by a company or held in trust.
If you own assets via a company or trust, your estate plan needs to address how control of that entity will be passed upon your death.  This will ensure the assets of the entity will pass in accordance with your wishes.  In the case of a company, this will involve considering who will be entitled to any shares you own in the company on your death. It may also require an examination of any rights you may have under the constitution of the company to appoint directors.
In the case of a trust, you will need to examine any rights you may have under the trust deed to appoint a replacement trustee and/or appointor or to wind up the trust and direct how its assets should be disposed of. If the trustee of the trust is a company, it will also involve considering who would be entitled to any shares you own in that company.

Superannuation & Life Insurance death benefits.
Assets held by a superannuation fund may bypass the estate and are paid to your nominated beneficiaries, as are life insurance benefits with binding nominations (where you specifically name your beneficiaries). If there is no nomination or the nomination is faulty, the payment of benefits may be subject to the super fund’s rules, and this may not always be what you desired.
As part of your estate plan, you also need to consider the tax implications of how your death benefit is dealt with. Lump sum payments paid to dependents (as defined under income tax laws) are tax free. Taxable components paid to non-dependents are subject to tax.

Next week’s focus is on planning for your future needs, testamentary trusts and tax effective estate planning.

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