27 Apr The importance of a will
Planning our estate is a vital part of any wealth management process. Deciding who is entitled to what after we die is not something that can be put off and left until later. It must be clearly and legally defined well ahead of time.
This article is designed to serve as a guide, answering some of your questions and preparing you for planning your estate. Don’t forget to get in touch for further information or support.
Our will is essentially a contract; a legally binding document which dictates what happens to our estate after we are no longer here. In many instances, a will is straightforward and non-complex, but it should not be assumed that this is the case.
Instead, it is critical that we understand precisely the contents and structure of our will so that we can ensure that each benefactor is getting what they are entitled to. Passing on a legacy and assets is a serious business. It pays to make sure everything is being taken care of.
Wills and Power of Attorney
A Power of Attorney document is similar to a will but it is enacted while the individual in question is still alive. In short, it ensures that a trusted candidate is able to take legal and executive action regarding your assets or estate if you are unable to do so yourself.
There are two types of Power of Attorney applicable in Australia. Each comes with its own set of caveats according to which state or territory you are in. The types are:
Enduring power of attorney – which enables a nominated individual to manage your assets in the event of an illness or accident, or in the event that you are absent.
Medical power of attorney – which enables an individual to take control of your assets and act in your best interests if you medically are unable to decide for yourself.
What Happens Upon Death Without a Will in Place?
If the worst happens and someone dies without an adequate will in place, the estate will be dealt with according to the laws of the territory or state. In Western Australia, for example, the estate is divided up among immediate family members and the spouse, based on a ratio which decides who is entitled to what.
This can lead to step-children being left with nothing, for example, or a spouse being left homeless because the house is in the deceased’s name and is more than their entitlement is worth.
Superannuation as Estate Planning Vehicle
A superannuation can provide an effective means of planning your estate and ensuring the right benefactors get the right assets. However, this can be a complicated procedure, thanks to the taxes involved with superannuation death benefits and the fact that not all assets tied up in the fund will automatically be counted as part of the estate.
However, despite the complexity, the SMSF option can still be beneficial. By including a death benefit clause to pay out to your children – all minors – in the event of death, your children can receive the benefit tax free if tragedy occurs. This can be reviewed at a later date to ensure that you and your loved ones continue to enjoy the most advantageous terms.
Tax Dependent vs Superannuation Dependent
Under Australian law, a tax dependent is defined as any individual who is classed as a dependent for tax purposes. This can include a spouse or a child under the age of 18.
A superannuation dependent, on the other hand, is defined as an individual named as part of the superannuation death benefit benefactors, but is not dependent on the trustee for tax purposes. This can include an adult child, for example.
A death benefit on a superannuation fund can be paid out in a number of ways, based on which of the dependent categories the benefactor fits into.
If the benefactor is receiving a lump sum directly from the fund, they must be classed as a superannuation dependent. If they receive a pension from the fund, they may be classed as a tax dependent in some circumstances.
It can be difficult to disentangle the two categories and to position your superannuation fund in the most advantageous way. Get in touch with us for guidance and more information.
Child Account Based Pensions
Finally, a child account based pension can ensure that a pension is paid to your child in the event of your passing until the child reaches 25, upon which they receive a lump sum. Children with severe disabilities may be eligible to receive the pension for longer.
In certain circumstances, these pensions can be delivered tax free, so it is advisable to seek advice to find out if they are the best option for you. Speak to your financial adviser today to learn more about the importance of planning your estate and to ensure that all the moves you make are the right ones.