Estate Planning Essentials – what you need to consider
Estate planning is not just about what happens when you die. It’s about making sure your wishes are documented and better decisions are made around accidents, ageing and health issues.
It may feel like a melancholy topic but it is something which, when addressed properly, does the right thing by your family and yourself, providing great peace of mind.
This document sets how and to whom you would like to leave your estate when you die.
Depending on your circumstances, it can be quite tricky to get it right. Careful thinking is needed to ensure that your wishes are clear and, where relevant, fair. This means that you need to think about assets which you may not be able to leave in your Will and how you might convey your wishes. You may also need to think about tax.
Lastly, you may need to consider family harmony where there may be complications such as a complex family structure, different tax entities, indivisible large assets, businesses or valued family heirlooms.
Given the ease with which mistakes can be made in a do-it-yourself Will, it is preferable to engage the right professionals to get it right.
Memorandum of Wishes
Also known as a Letter of Wishes, this is a non-binding document that provides guidance as to the object and purpose of Estate Planning documents and also allow the formal documents (such as a Will or Trust instruments) to remain flexible and broad.
A Memorandum of Wishes may be helpful where the testator (Will maker) wants to provide guidance to the executor and possibly the beneficiaries. It may also be useful where there are:
Minor children – to provide guidance to Guardians of minor children appointed under a Will.
Potentially contentious estates – to provide reasoning to the executor as to why a certain beneficiary is not named in a Will.
Discretionary Family Trusts – to provide guidance to the appointors, guardians and trustees.
Charitable giving – to provide named beneficiaries of a Will with an understanding that the testator intended them to pass gifts left in their names to certain preferred charities.
Enduring Power of Attorney
An ordinary Power of Attorney (or General Power of Attorney) is a legal document in which you appoint the person or trustee organisation of your choice to manage your assets and financial affairs while you are alive.
Making a Power of Attorney does not mean that you will lose control over your financial affairs. It simply gives your attorney formal authority to manage your financial affairs according to your instructions.
An ordinary Power of Attorney does not give your attorney the power to act once you lose mental capacity. You can make an Enduring Power of Attorney which will continue to have effect after you have lost your capacity to self-manage.
A Power of Attorney does not give your attorney the power to make lifestyle decisions on your behalf. This requires an Enduring Guardianship.
An Enduring Guardian is someone you appoint to make lifestyle, health and medical decisions for you when you are not capable of doing this for yourself. Your Enduring Guardian may make decisions such as where you live, what services are provided to you at home and what medical treatment you receive.
Enduring Guardianship only comes into effect if or when you lose capacity and will only be effective during the period of incapacity. Therefore, depending on your circumstances, it may never become operational.
Living Will (Advance Care Directive)
This is a document that sets out your directions, including your wishes and values that need to be considered before medical treatment decisions are made on your behalf.
An Advance Care Directive can be attached to your Enduring Guardianship or you can direct your Enduring Guardian to this separately written document. If drafted as a separate document, there is greater flexibility to change it without impacting your Enduring Guardianship nominations.
Superannuation and pensions
Superannuation and pensions require very careful consideration within your estate planning. You cannot leave your superannuation in your Will. You must make a nomination which notifies the trustee of the super fund who you wish to be the beneficiary. If you make no nomination, the trustee must determine who is entitled to your superannuation.
A nominated beneficiary must meet the definition of a ‘dependant’. By definition, a spouse and minor children are dependants. There may be others in specific circumstances. You can also nominate your Estate as the beneficiary, but this may come with avoidable tax consequences.
Apart from tax, there may be other complications which need to be taken into account such as where there is insurance in super, children and family breakdown.
When documenting your wishes, avoid the pitfalls of improper execution of documentation. We normally recommend using an estate planning professional to ensure everything is consistent and executed properly.
Should you require help in this area, Sovereign Wealth Partners can assist.
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