Many Australians still do not see estate planning as something they need to focus on, and many don’t realise they may in fact have very significant estates, said Mr Michael Hutton, head of wealth management of HLB Mann Judd Sydney.
“The family home, superannuation balances and other assets, can all add up to a very valuable legacy – particularly in Sydney where the median house price is now over $1 million.
“Despite this, one in two Australians die without a valid Will, which means that when they die, their assets are distributed according to a set formula rather than in accordance with their wishes.
“A significant part of people’s overall wealth management process is to ensure that upon death, wealth is passed on to who they want it to go to, in an appropriate, tax effective and well-understood manner.
“People might also aim to protect their wealth from spendthrift beneficiaries, potential creditors of the beneficiaries and so forth. A good estate plan will ensure that this is achieved.”
Benefits of a well thought through and well documented estate plan include:
· Assets are passed to beneficiaries with an element of asset protection – for instance, protection from any legal or personal issues of the beneficiaries such as divorce
· The likelihood of litigation against the estate, by a disgruntled beneficiary, can be minimised
· Contingency planning – for instance a suite of documents can be put in place for use when a person dies or becomes incapacitated, by establishing power of attorney and power of enduring guardianship
· The opportunity to assess what is actually owned and who it should go to. Many people learn a lot about their financial affairs from going through the estate planning process.
“For example, jointly owned assets are an important consideration. It is not always understood that such assets automatically go to the surviving joint owner, regardless of what a Will says. This includes jointly owned property and joint bank accounts.”
Mr Hutton said another issue is that when estate planning is dealt with it is commonly addressed at a very low level.
“Often little thought is put into incorporating factors such as testamentary trusts in wills, even where the estate being left is very large.
“Testamentary trusts are a way of passing wealth to beneficiaries in a tax efficient, asset protected manner.
“Testamentary trusts are only formed upon the death of the testator and can be very flexible – or not, depending on the testator’s wishes,” he said.
Family trusts are another good estate planning tool. Because the family trust is a separate entity, not part of the estate, it does not die when the testator dies. Therefore family wealth can be built up and then passed on to the next generation intact without the portfolio of assets having to be sold and distributed.
This differs to a superannuation fund, which must be wound up once the member of the fund dies and has no financial dependent to leave the balance to. Therefore if superannuation is being left to adult children, then the fund account must be wound up.
Mr Hutton says that going through the estate planning process is also an opportunity to think about a legacy.
“People often start to think about whether there are any particular things they wish to be remembered for, such as supporting a particular charity or cause, or leaving money for grandchildren’s education or to help them buy their first house.
“Once people recognise these benefits exist, estate planning can actually become a rewarding experience in many ways,” Mr Hutton said.
