No-one particularly likes to think about their own eventual death or the demise of a loved one. Most of us would much prefer to contemplate the more pleasant parts of our future, like seeing our children grow up, or what the next iPhone will look like. But delving into what will happen to your things once you are gone can help create better clarity of your wishes upon death and save your family a whole bunch of added, and unnecessary, grief. This is the realm of estate planning and includes, among other things, Wills and powers of attorney.
What is a Will?
Your Will (or testament) is a legal document which tries lets those you leave behind know what you would like to happen to the assets of your estate once you pass on. This generally does not have effect over non-estate assets which may include assets owned jointly (e.g. husband and wife - which goes automatically to surviving owner), insurance proceeds and superannuation benefits.
What is a power of attorney?
Powers of attorney allows you to give someone the authority to act your behalf. This may be good if you are unable to do so due to location (e.g. you are out of the country) or incapacitated (e.g. in a coma). This bestows a lot of responsibility and power upon the appointed attorney so choosing wisely is very important.
What is estate planning?
Apart from the unpleasantness of facing your own mortality many of us remain apathetic to estate planning issues for a number of reasons:
- Too young/single - Age is no excuse, as with the growth of superannuation (which often includes default life insurances) and the ongoing desire of home ownership, assets that need to be transferred upon the death of someone still young in years may be substantial.
- Cost - Sitting down with a solicitor to go through your assets and work out how everything should be distributed upon your death can cost anywhere from a few hundred dollars to a few thousand. The alternative, though, could be much worse (see below).
- She'll be right - Dying intestate (without a will) means that your estate assets will be distributed under state law. This could lead to your assets not being transferred as you would have wished. A poorly constructed Will could very well have the same result, and both situations may lead to damaging and costly legal disputes.
So what can you avoid by making sure your estate planning is up to scratch. Here's a quick list:
- Legal disputes - if you think a solicitor's cost for doing you up a good Will is expensive, wait until you see how much they and the courts will charge should there be any disputes due to no Will or an unclear Will;
- Taxes - Death taxes in Australia are long gone, except in the case of superannuation benefits and certain insurance proceeds. Minimising these taxes is an important part of estate planning. Furthermore, tax on future earnings of estate proceeds can also be minimised through an effective Will;
- Marriage breakdowns - your children or other beneficiaries may not make the best choice when it comes to a spouse and you may want to protect your estate from ex's should relationships go downhill;
- Bankruptcy - again, your children or beneficiaries may not make the best business decisions or face litigation. Protecting your estate from potential creditors can also be a prudent measure;
- Non-estate assets - Some assets will pass through to your spouse, children and others automatically and will not form part of your estate. This can cause a problem if these assets are not taken into account when drafting your Will with the potential for some beneficiaries' share to be a lot larger than intended;
- Forced sales - Larger assets (such as the family home or other property) may be difficult to transfer or split and may lead to a forced sale (especially if there is a mortgage). Life insurances can help to mitigate this issue.
Understanding the ins-and-outs of your estate plan can be a of great value to you and your family. You can save your family heartache and costly infighting by developing with a solicitor an air-tight Will, and help ensure that as much of your estate and legacy as possible is passed down where you want it to go.