Having an effective estate plan means that a person’s wishes regarding their health and assets are followed in the event they become incapacitated or die. But do you know what items will form part of your estate? If you do have a Will, does it adequately record your wishes?

Why have an estate plan?

It’s imperative that the planning of a person’s estate is addressed diligently.

A person’s estate can include financial assets, life insurance, superannuation, real estate, businesses, companies, cars, personal belongings and debts.

An estate plan usually includes a person’s Will and documents to govern how that person will be cared for (medically and financially) if they become unable to make their own decisions in the future. Although there are many reasons why a person should have an estate plan, the top five reasons are to:

  • avoid probate
  • reduce estate taxes
  • avoid leaving a mess for loved ones to deal with
  • protect beneficiaries
  • protect assets.

Why make a Will?

One of the most important documents in estate planning is a person’s Will, which generally sets out:

  • the person or people who will be appointed to administer and distribute the assets under the Will (known as the executor/s)
  • the person or people who will receive the assets under the Will (known as the beneficiaries), and
  • if applicable, a guardian to be appointed for dependents or children.

If a person passes away without a Will:

  • an administrator will be appointed to that person’s estate. While the administrator has certain obligations in administering an estate, they may not do so in the manner envisaged by the deceased person.
  • the deceased person’s assets may pass to a current partner, not that person’s children or preferred beneficiaries.
  • the assets of the estate may be distributed to in a way not in keeping with the deceased’s wishes. For example, the assets may be distributed to children equally, regardless of specific circumstances that the deceased may have wished to have been taken into consideration (e.g. whether a child is in the process of a divorce or involved in financial arrangements with creditors, or if there is a pre-existing inequality of wealth among the children of the deceased).
  • other intended beneficiaries (e.g. close friends or nieces and nephews) may not be granted any benefit from the estate.
  • grandchildren could miss out on receiving any gifts. Where no beneficiaries are specified, the law of intestacy requires estate assets to pass to a surviving spouse and children, which will often leave out the next generation. With a valid Will, a person can provide for grandchildren to receive assets and, if they are minors, a trust can be set up to manage the grandchildren’s financial affairs until they are adults.
  • stepchildren (if any) may not receive anything from the estate. Generally, stepchildren are not recognised as beneficiaries entitled to inherit assets under an intestate.
  • children or other beneficiaries may incur taxation consequences not intended by the deceased.
  • contributions to a charity or church will not be able to be made. Only a Will can make provision for a monetary gift to a favourite charity.

Assets not covered under a Will

It’s important to be aware that some assets may not form part of a Will and an appropriate succession plan for the following assets should be put in place:

  • jointly owned assets
  • assets held by superannuation fund
  • assets owned by discretionary trusts, as they remain the property of the trust
  • proceeds from a life insurance policy, which are paid directly to the beneficiary nominated by the insured person
  • assets owned by unit trusts or companies that are controlled by the deceased, although any shares and units of such trusts and companies owned by the deceased will form part of the estate.

Enduring Power of Attorney and Enduring Guardianship

A comprehensive estate plan, which assists where a person becomes incapacitated, also includes:

  • Enduring Power of Attorney – allows a person to appoint someone as their attorney to make financial decisions and manage their assets (including making decisions regarding investment of assets as well as sale and purchase of real estate)
  • Enduring Guardianship – allows a person to appoint a guardian to make health and lifestyle decisions (for example, where you will live and who will look after you).