It’s a sad but unavoidable fact: one day we are all going to die. You will most likely have clear ideas as to how you would like your hard-earned wealth – your ‘estate’ – to be divided amongst your loved ones or other beneficiaries. However, estate planning is a complex area of law and basic mistakes can see Wills declared invalid, money end up with unintended recipients, or benefits reduced by avoidable tax bills. So how can you avoid making some of these mistakes?
Make a Will
Only around half of Australian adults have a valid Will. If you don’t have one, make one. Otherwise your estate will be distributed according to a government formula, and if no beneficiaries can be identified your life’s savings will end up in state government coffers.
If you do have a Will make sure you review it regularly and update as required. Just a few of the key events for revising your Will include entering or leaving a marriage or de facto relationship, starting a family, establishing investment vehicles such as companies or trusts, changes to the financial, relationship or health status of adult beneficiaries or to add gifts to charities.
Appoint an appropriate executor
Administering an estate can be a major undertaking. Ideally you will want an executor who is competent, organised, honest and unbiased. Often this will be a spouse who is also the sole beneficiary, and administration of the estate may be relatively straightforward. But it’s necessary to also nominate an alternative executor should your spouse die before you. This may be an adult child or other close relative, and not necessarily a beneficiary. Whoever you nominate make sure you tell them that they are a (potential) executor and provide them with important information such as the location of the original Will, and contact details for your solicitor, accountant and financial planner.
To make things easier for the executor and to hopefully save on some costs in the administration of your estate, it is recommended that you also complete (and keep updated) an executor’s dossier which records certain key information that your executor will need. Your executor will need to know where to locate that document.
Identify assets that may not be dealt with by your Will
Any assets that you own as joint tenants with other persons automatically pass to the surviving owner(s) on your death. They are not subject to your Will.
If you have provided your super fund with a valid binding death benefit nomination, your death benefit will be paid to the nominated beneficiary or beneficiaries. This can be anyone who qualifies as a dependant under superannuation law, and need not necessarily be a beneficiary of your Will. If you nominate your ‘legal personal representative’ (i.e. your executor), the death benefit will be paid to your estate and dealt with according to your Will.
If you don’t make a valid binding nomination the trustees of your super fund are obliged to pay the benefit to your dependents, as defined by superannuation law, but the trustees have total discretion about who they pay the benefit to and in what shares. This may not coincide with your wishes.
If a spouse, child or other person who is financially dependent on you has grounds to claim that you had a duty to provide for them and that they have a financial need but you have not provided for them in your Will or they can show that their financial need entitles them to greater provision from your estate, then they may be able to successfully challenge your Will.
Invariably, legal fees of the claimant and the executor (who is obliged to defend the Will) will be paid by the estate, eroding its value, so you’ll want to minimise the chances of the Will being contested.
It is quite common for significant estate litigation legal fees to be incurred very quickly and often an executor comes under serious pressure to reach a settlement with a claimant to stop the value of the estate being eroded by mounting legal fees.
Also be wary of ‘ruling from the grave’, for example by making any gifts dependent on a beneficiary either doing something (marrying a specific person, say), or not doing something.
Get expert advice
Estate planning throws up many other traps for the unwary, from paying too much tax on a superannuation death benefit to not making provision for beneficiaries who are unable to adequately manage their own affairs. With so much at stake, it pays to consult a specialist estate planning lawyer.
We are regularly called upon by our clients to provide them with complex and specialised advice to assist them to successfully avoid those hidden pitfalls. Please feel free to contact one of WGC Lawyers Wills & Estates team members to assist you with your estate planning arrangements.