PREPARE FOR YOUR FAMILY’S FUTURE BY PLANNING YOUR ESTATE TODAY
It’s never too early to decide how your assets and finances will be distributed when you die. Careful estate planning will not only give you peace of mind for your family’s future, but ensure that your estate attracts as little tax as possible when it’s transferred to your beneficiaries.
Even if you don’t think you have many assets, it can be a considerable amount once you take into account the insurance and superannuation benefits that are paid out on your death. Although basic estate planning starts with a will, it can also cover situations that occur while you’re still alive. For example, you can appoint a power of attorney to make financial, legal, medical and lifestyle decisions on your behalf if you become aged or ill and can’t make your own decisions.
You can also arrange for your power of attorney to have temporary powers, which can be useful if you have an accident and can’t sign documents or are travelling overseas and unable to manage your legal affairs at home. You may also like to set up a testamentary trust, so benefits are held by a designated family member, trustee, accountant or solicitor instead of being transferred directly to your beneficiaries. This may be useful if your beneficiaries are minors, you don’t trust them to use their inheritance wisely or you don’t want your assets split as part of a divorce settlement. Estate planning is complex and requires a good understanding of the laws and tax regulations in your state, so it’s best to leave it to a professional SF Financial Adviser.
PREPARING A WILL
A will is a legal document which comes into effect after you die. It specifies how your assets and finances will be distributed, how your outstanding debt will be paid, who will look after your children, your preferred funeral arrangements, whether you would like to donate your organs and more. To save your family the stress of managing your affairs, it’s essential that your will is valid and up-to-date.
You should review your will every two to three years or if your circumstances change—for example, if you marry, divorce, have children, if your beneficiaries die or your financial situation changes. Without a valid will, there may be significant costs, taxes and time delays which can affect your beneficiaries. It can impact their finances, tax obligations and even pensions and other social security benefits.
While most of your estate is covered within your will, there are a number of important assets that need to be covered in a separate estate plan, by law.
These include:
- Assets held in trust
Company assets, as the company is considered a separate legal entity
Superannuation, which is held by the trustee of the super fund and may not be included in the estate
Jointly-held property
Proceeds of life insurance policies
If you die without a will (intestate) or your will is invalid, an administrator distributes your assets and pays your debt according to a pre-determined formula, which may not be tax-effective or in the best interests of your family. If you don’t have any living relatives, your entire estate will be transferred to the state government.
SUPERANNUATION BENEFITS
Superannuation is often one of the most significant assets within an estate plan. As it’s not covered within a will, it’s essential that you consider how your superannuation benefits will be distributed on your death. There are two options to consider: binding and non-binding death benefit nominations. A binding death benefit nomination allows you to nominate who will receive your superannuation benefits and stays in force for a renewable three-year period. By law, the trustee of your estate must pay the beneficiaries the amounts you have chosen, however you can cancel a binding death benefit nomination at any time.
If your circumstances change, through divorce or death of a nominated beneficiary, the binding nomination becomes invalid.
A binding nomination can give you certainty around who will receive your superannuation benefits on your death and save your beneficiaries from costly litigation and excessive tax. If you don’t want to name specific beneficiaries, you can choose to transfer the funds to your appointed executor or administrator, who can distribute the benefits according to your wishes. You can only nominate certain people to receive your superannuation benefits on death: eligible dependants or legal personal representatives (LPR).
Eligible dependents include your spouse (including de facto, same-sex or opposite sex spouse), child, person who you have an interdependent relationship or someone financially dependent on you at the time of your death. LPRs include the executor of your will, the administrator or your estate or someone who is an enduring power of attorney for you.
If you don’t have a binding nomination, your trustee makes the final decision as to who receives your superannuation benefits and how much each beneficiary receives. This is called a non-binding nomination. It doesn’t have an expiry date and therefore does not need to be renewed. You should consult your SF Financial Adviser before making any decisions regarding estate planning, as there can be significant tax, legal and financial consequences for you and your family if it’s not done correctly.
This information is general in nature and does not take into consideration your personal circumstances. Talk to your SF Wealth financial adviser for estate planning advice that’s right for you.
