The four biggest mistakes families make with estate planning

You’ve worked hard all your life. So, when you die you want to make sure the wealth you’ve built ends up in the right hands.

Estate planning can provide the peace of mind that this will occur. But there are some big mistakes families make that could disrupt even the best-laid plans.

Here are four of the most common – as well as tips for how to avoid them.

Failure to plan

Many Australians put off estate planning because they think they have plenty of time to handle it. And who really likes thinking about their own mortality? But if the worst does occur, and you don’t have a concrete plan in place, your loved ones could be left in the lurch.

That’s because ‘intestacy’ law will then kick in. Intestacy is when you die without a valid will. When that happens, the state distributes your assets to your nearest surviving relative based on a kinship list. But relationships these days don’t always follow the ‘nuclear family’ model – so this can result in your wealth going somewhere you didn’t want it to go.

Not keeping your estate plan up-to-date

The Greek philosopher Heraclitus famously said: “change is the only constant in life”. So, if you drafted your estate plan more than a few years ago, it’s likely your circumstances have moved on. This could be anything from:

• Change in your family structure such as births, marriages, divorces and deaths
• Change in your financial situation such as inheritances and bankruptcies
• Change in the value of your assets
• Change in estate planning or taxation laws

As a result, your existing estate plan may be out of line with your current intentions. The best way to make sure it always reflects your wishes is to review it every three to five years – or when a major life event happens.

Forgetting about your super

People often make the mistake of assuming super forms part of their estate. But it doesn’t, as superannuation assets are legally held by the trustee of your fund (until you are eligible to access it).

However, most funds let you nominate a beneficiary. This beneficiary will receive your super balance should you die. But if no nomination has been made, the trustee decides where your money goes (guided by super law). This may not be in step with your wishes and could cause family rifts.

Again, it’s important to keep your named beneficiary up-to-date, as this nomination will override any instructions in your will. This is also true for named beneficiaries on life insurance policies.

Not considering tax implications

In Australia, most assets can be transferred to your beneficiaries after your death without being subject to capital gains tax. However, there are some notable exceptions to this rule including foreign residents, charitable organisations and the sale of property.

As you don’t want to unwittingly land beneficiaries with a hefty tax bill, consider any tax implications when you draft an estate plan. You might want to give loved ones assets rather than the proceeds of a sale or establish a testamentary trust.

A testamentary trust is a trust set up through your will that can minimise tax paid, especially if the beneficiaries are under 18. They can also be used to protect inheritance from any creditors or in the event of a divorce.