Estate planning involves determining how your assets will be preserved, managed and distributed after death or in the event of incapacitation.
While it’s important to have an estate plan in place, only 52% of Australians have a will, a key document in effective estate planning.1 Not having an estate plan exposes you and your family to potential hardships, including losing wealth.
Why do so many people fail to plan?
There are several reasons why this important process is avoided. The first is believing that an estate plan is only for the wealthy. This is wrong because a smaller estate without a plan will be subject to costs – such as probate and court guardianship – that will chip away at the estate value, leaving less for beneficiaries.
There’s also the question of cost. While it might seem too expensive to justify getting an estate plan, the cost is minimal compared to the potential loss from not having one. Also, we purchase insurance to protect our homes, cars, income, travel and more. Estate planning is another way of reducing risk and protecting your family and assets.
Another reason for not having an estate plan is the belief that it’s for older people. While the probability of dying from illness increases with age, people can die from illness or an accident or lose the capacity to make decisions at any age.
A lack of knowledge also stops many people from estate planning. They might not understand the details, think it’s too complicated or believe that “things will work out” if something happens.
On the other hand, having an estate plan might seem like the right thing to do, but never gets done. It’s one of the items on a to-do list but has a lower priority than many other things (that are less important), so it doesn’t happen.
What can happen if you don’t have an estate plan?
Not having a good estate plan opens the door to a range of problems. A few of these are:
- No clarity on who inherits your assets – even if a couple jointly holds assets, it’s not always clear how the wealth should be distributed. If both die, it’s likely that a court will decide who receives the assets. In addition to a lengthy legal process, disagreements between relatives can get messy and can permanently damage family relationships.
- No protection for your children – without an estate plan, it isn’t clear who will care for children in the event that both parents or guardians die and what assets they will inherit when they turn 18. These decisions will be left to the courts and can result in distress for relatives wanting to care for orphaned children.
- Going through probate – this is a process supervised by the court that authenticates your will (if one exists), assesses the value of assets, repays any debts and taxes, and distributes the remaining assets to your rightful heirs (as deemed by the court). This time-consuming and stressful process can be avoided if you have an estate plan.
- Higher taxes on assets – with estate planning, you can minimise the amount of tax payable and maximise the amount received by your heirs. Family trusts are one way to minimise tax, but they have to be structured properly.
- No protection for adult beneficiaries – adult beneficiaries can make bad decisions about their inheritance as a result of creditors, divorce or the inability to manage money. An estate plan can include clauses to protect adult beneficiaries.
- Not appointing a conservator – a conservator is a financial guardian you appoint to manage the assets your children will inherit. This person sees that your instructions are followed on how your assets are distributed and can help avoid the probate process.
What about using a do-it-yourself will kit?
It can be tempting to save money by using a free or cheap DIY will kit, but this can be problematic. Most importantly, this type of will might not cover your situation and changes over time.
Here’s an example of how a will from a DIY kit can fail: If a couple dies in an accident, the spouse deemed to have died second (or the younger spouse if this cannot be determined) will be allocated the assets which will end up on their side of the family, which might not have been the intention.
Other issues that might not be properly addressed in a DIY will kit include the effect of marriage and divorce on assets, how to deal with superannuation, the guardianship of minor children and how to deal with businesses and trusts.
More to an estate plan than just a will
While a will is a key part of an estate plan, there’s more to it. One is an Enduring Power of Attorney. This legal document enables you to appoint someone to make decisions about financial matters. The person making the decisions is called an attorney, and the power endures if and when you are not able to make decisions.
Another legal document that’s part of a comprehensive estate plan is an Appointment of Enduring Guardian (Enduring Guardianship). This is a person you appoint to make health and lifestyle decisions on your behalf. You choose what your Enduring Guardian can manage for you if you become incapacitated, which can include where you live, what services you receive at home and what medical treatment you receive.
Get peace of mind with an estate plan
The lack of estate planning in Australia creates unnecessary risks and hardships for partners and families. Finextra Wealth can help walk you through a plan to secure your assets and finances for when you’re gone.
Once your objectives are documented, our lead adviser Heath Hebenton can refer you to estate planning professionals to assist in drafting your Will, Powers of Attorney and other documents required to ensure your wishes are carried out.
Book a free call with Finextra Wealth to find out more.
Want to enjoy your retirement and live comfortably? Get the expert advice you need to make your nest egg last the distance by contacting Finextra Wealth.
Book a free breakthrough strategy call with Heath Hebenton to find out more.
