Finance News

Estate Planning

Estate planning forms a vital component of any financial plan. To ensure you have a valid and sound estate plan, you require the involvement of knowledgeable legal, accounting and financial specialists.  This is to ensure the right funds get into the right hands at the right time. What does estate planning mean to you? A broad definition encompasses the following points:
  • Having enough assets available to meet your wishes upon death.
  • Transfer of ownership (or control) of those assets is passed onto the appropriate person or entity.
  • Ownership or control passes to a beneficiary at the right time.
Simply, estate planning involves making sure that, when you die, the appropriate assets go where you want them to, when you intended them to go there. Some basic elements to consider when addressing your estate planning needs are:
  • Whether you have a current and appropriate drafted Will.
  • Whether you need an Enduring Power of Attorney.
  • Whether a Testamentary trust is appropriate.
  Wills Making and maintaining a current Will is a critical aspect of any estate plan. A Will allows you to direct how your assets are dealt with after you die. Everyone, even with modest assets, should have a current, valid Will. Without a Will, you can’t control how your assets are distributed when you die. If you die without a Will or your Will is incomplete, you are said to have died intestate. This means your estate will be distributed strictly in accordance with the relevant state laws governing the distribution of estate assets. This may not be what you wished for. The executor is responsible for carrying out your wishes as expressed in your Will and has fundamental control of the process. The person you select must be capable of performing the role and be capable of working with competent advisers. The administration of an estate can be time consuming and is likely to need investing, taxation, accounting and legal input. Joint assets Jointly owned assets (usually the family home) cannot be disposed of through a Will. When one owner in a joint tenancy dies, the asset passes automatically to the survivor/s. Assets held under tenancy-in-common are considered assets of an individual's estate. A tenancy-in-common exists where 2 or more people share an asset. When one owner dies, there is no automatic transfer of that share to the other owner/s. When a tenant-in common dies, the deceased's portion of the asset is treated as a separate asset for Capital Gains Tax purposes. Power of Attorney A Power of Attorney is a document whereby a person appoints another to perform certain tasks on their behalf. There are 2 basic approaches to Powers of Attorney:
  • Non-enduring Power of Attorney.
  • Enduring Power of Attorney.
  Non-enduring Power of Attorney A Non-enduring Power of Attorney is usually set up so the attorney can cover a specific event for a fixed period of time (restricted). For instance, it can be granted for duration of your absence (for example, if you are going overseas). However, the power can be unrestricted whereby the attorney has the capacity to make any decisions on behalf of a person with respect to that person's property, while the Power of Attorney remains in force. If you're going to be absent from your normal place of residence for a considerable period, you may want to consider who will look after your financial affairs. Given that you can limit the powers granted under a Power of Attorney, you may wish to grant a close relative, a limited Power of Attorney, to look after your financial affairs whilst you are away. Non-enduring Powers of Attorney become invalid if the person who granted the power becomes mentally incapacitated. Enduring Power of Attorney The Enduring Power of Attorney is suited to looking after the affairs of a person when they are not in a position to look after their affairs themselves. Unlike a general Power of Attorney that stops once a person who granted the power becomes mentally incapacitated, an Enduring Power of Attorney continues to operate when a person becomes mentally incapacitated. In light of this, consideration should be given to granting an Enduring Power of Attorney. This will make sure your affairs can be handled on your behalf should anything happen to you. Also, it would continue to operate if you became ill or disabled and lost the capacity to make decisions. Because of its legal effect, an Enduring Power of Attorney can only be signed after obtaining the advice of a solicitor. The use of an Enduring Power of Attorney should be carefully weighed before implementing such a strategy. Testamentary trusts A trust is an obligation where a person/entity (the trustee) is legally bound to hold and deal with property for the benefit of other people (the beneficiaries). A Testamentary trust is created via a Will and is activated as a result of death. The Will details the framework for the operation of the trust and records the terms and conditions of the trust. The terms of the trust can be drafted to suit your needs. Some advantages of Testamentary trusts Testamentary trusts have a number of advantages:
  • They can provide flexibility to allow income and capital to be divided between beneficiaries, at the time and in amounts as determined by the trustee. This makes it possible to reduce tax, as distributions to beneficiaries under the age of 18 years are taxed at adult rates rather than at the usual children's penalty tax rate. The trustee can also take into account the other income of beneficiaries prior to distribution to minimise the amount distributed to beneficiaries.
  • A trustee can direct distributions away from particular beneficiaries.
  How are trusts taxed? It is the duty of the trustee to lodge a tax return for the trust. If the trust makes a profit, either the trustee or the beneficiary who receives the distribution will pay tax. If the trust fails to distribute its income, the trustee is liable for payment of the tax liability of the trust. If the trust distributes its income, the beneficiaries must include that income in their own personal tax return. The distribution will be taxed at the beneficiary's marginal tax rate. Issues when establishing a trust The preparation of Wills that include provision for optional Testamentary trusts calls for the skills of a specialist lawyer. Rules relating to Testamentary trusts are complex and you will need expert help when dealing with these types of structures. Before such an option is considered, the legal and accounting costs and complexity of establishing a trust arrangement need to be justified. Nominating beneficiaries for your superannuation Sometimes, the ultimate decision-maker of how your funds are distributed after your death, is the trustee of your superannuation fund. However, if you elect for the nominated beneficiary of your superannuation to be binding on the trustee, your estate planning objectives can be designed with greater certainty. You are only able to nominate your legal, personal representative/estate or a person who is a "dependant" to receive your death benefit. In this context, a "dependant" includes the following:
  • Your spouse (including a de facto spouse);
  • Your children (including an adult child, an adopted child, a step child or ex-nuptial child;
  • Anyone who is financially dependent on you at the time of your death; or
  • Anyone with whom you have an interdependency relationship with you at the time of your death.
Generally, superannuation death benefits are tax-free when they are paid to tax dependants, such as a spouse or minor children. However, if your funds are left to beneficiaries who are not dependants for tax purposes (e.g. an adult child or a friend), they will be taxed on the taxable component of any death benefits they receive from your superannuation. A binding nomination is binding on the trustee of the fund. This means that the trustee must pay the nominated beneficiaries as directed by you, provided your nominated beneficiaries qualify as dependants at the relevant time. A binding nomination generally speeds up the payment of benefits upon death. A binding nomination is only valid for up to 3 years from the date of signing the nomination form. During this time, a binding nomination can become invalid under certain circumstances. These circumstances include events such as marriage, divorce or death of the nominated beneficiary. It is important that you review your binding nomination regularly and update it, as your personal circumstances change or if 3 years pass from the date you made your last binding nomination. You can cancel or change your nomination at any time. If you don't nominate someone specifically, the funds may form part of your estate to be divided according to the instructions in your Will. Due to the complexities of estate planning, we recommend that you obtain advice in this area from an estate planning specialist. Author: Con Koulouris If you would like to contact the author please click here  

ASCK Pty Ltd (ACN 105 450 566), trading as AMEGA Financial Solutions is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited Australian Financial Services Licensee and Australian Credit Licensee 232 706. General advice warning: This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

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