What was once a simple nuclear unit of mum, dad and the kids has evolved to include ex-spouses, second spouses (even third and fourth ones), defacto partners, stepchildren and other dependants. The fictitious Pritchett family in American sitcom Modern Family is certainly complex, so let’s hope Jay, the wealthy patriarch, has his affairs in order.

Not only does he have an ex-wife (De De), a new wife (Gloria), children of his own by his first marriage (Claire and Mitchell), he also has an adopted son (Manny), grandchildren (Haley, Alex and Luke) and an adopted granddaughter (Lily) – not to mention two sons-in-law (Phil and Cam).

But what would happen if Jay were to suddenly pass away? Would Gloria inherit his wealth?  What would happen if she then passed away leaving the wealth to her son Manny who is suddenly back in the custody of her ex-husband? Would Claire and Mitchell have any claim to Jay’s fortune and what about their respective family members? Would Cam be recognised as Mitchell’s partner and would Lily have the same rights as Jay’s bloodline descendants? And what about De De, after all she was the first wife, could she claim?

The fact is, art does mimic life and today’s family is complex. When it comes to financial planning, it is important to know that the law has also evolved to recognise these new family dynamics. Emotional attachments aside, what defines family these days is not always love and blood relatives, but being capable of making a claim against your estate when you’re gone, whether you want them to or not!

Instead, he survived a huge knock to the head that rendered him senseless for the rest of his days

Specialist financial planning is required so that those you love (and those you don’t) are properly dealt with by your estate. It’s called estate planning and it is so much more than just drawing up a will.

Your will only deals with the assets it has jurisdiction over. Estate planning for your other assets – including your superannuation, assets held as joint tenants and family trusts which are outside the control of your will – are managed in accordance with your wishes and requirements, whether you are dead…or not.

Let’s say, Jay Pritchett didn’t die. Instead, he survived a huge knock to the head that rendered him senseless for the rest of his days. Without an estate plan that includes a power of attorney, there is no one other than a court-appointed representative who is legally allowed to make decisions about Jay and the assets he controls.

But if Jay does have a power of attorney, who would it be? If Gloria survives him, would she be the most appropriate person to make his business decisions or would that task be better suited to his son Mitchell, the lawyer?

There are other matters to attend to as well, including guardianship. Who will look after Manny if Gloria suffered incapacitation as well and Manny’s father is nowhere to be found?

Estate planning involves working through all the technical, practical and emotional elements that help an individual to plan for and/or distribute their assets, preserve and ultimately transmit their wealth to their choice of beneficiaries in death or incapacitation. It may need to involve beneficiaries of the estate in conversations as well. A financial planner with special interests in estate planning can guide you through the entire process, coordinating with your legal practitioner, so that your estate plan is as well considered and integrated with your other financial matters, such as risk management, investment strategies, superannuation and retirement planning.

Right funds, right people, right time
The overall goal of estate planning at its core has not changed: it seeks to ensure the right funds are received by the right people at the right time. However, modern estate planning takes this one step further and aims to prevent ‘shrinkage’ in order to maximise the estate and take into consideration all structures. Shrinkage is caused by many factors, such as inefficient administration, too much tax being paid or unexpected claims. The driving factor behind estate planning is that wealth be preserved and transferred as efficiently as possible to the next generation.

Equality is in many cases the overriding objective of the estate plan; it may not necessarily be fair. For example, in some situations, beneficiaries may have received monies during the parents’ lifetime while others did not, or one child may have special needs and requires additional funding.

During the next 20 years there will be a massive transfer of wealth in Australia

Having a simple will where all wealth is transferred to the beneficiaries in their own name can be cost effective but that’s where the benefits stop. Considering asset protection to preserve the family’s wealth can prove to be a worthwhile exercise. A will which sets up structures that gives the beneficiaries control of the wealth while protecting the assets (in so much as possible) from family provision claims, creditors and from mismanagement as well as providing tax planning opportunities may cost more initially, but will pay for itself many times over in the long run. Given this, if beneficiaries are adults they should be part of the estate planning process.

While keeping things simple may be preferable, working with a specialist estate-planning solicitor to add well-considered directives to a will can add immense value for the beneficiaries of an estate. In this way all the assets a person controls can be safeguarded in the event of death and, equally important, incapacity.

During the next 20 years there will be a massive transfer of wealth in Australia.

The babyboomers, whom some might argue have been in the right place at the right time, have accumulated large amounts of wealth and are now planning how that wealth will transfer to the next generation with the least amount of ‘shrinkage’.

Gareth Colgan is a financial planner at Sidney Lloyd Financial Advisers, a member of Fortnum Financial Advisers.

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