The Four Pillars of Estate Planning
There are four important elements to consider when thinking about estate planning:
A Will
An Enduring Power of Guardianship (with or without an Advance Health Directive)
And, if you have superannuation, a Binding Death Benefit Nomination (preferably non-lapsing)
You may have one, or some, of the above. You may have had them prepared by a lawyer or you may have prepared them yourself. When did you last check them?
Or you may have none of them!
Or you may have a will which has been revoked (possibly without you realising):
If you have married or divorced since you prepared your will, it is likely that your will has been revoked by law and you now have no valid will. Marriage and divorce are obviously times which require reconsideration of your will and estate planning.
These are some of the most important documents you will ever prepare, so it makes financial and common sense to ensure you have valid and up to date documents to protect your assets, wishes and wellbeing, and also to protect your family and loved ones.
If you don’t have a valid will, or if you have one which does not reflect your wishes or does not take account of your family circumstances, your estate could be disputed – see here for more information.
Where is your will?
There is no point having a will if you don’t know where it is, or your family cannot locate it when you die!
We offer a safe custody service for wills prepared by Young & Young, at no charge.
We can provide you with copies of your signed will and other estate planning documents.
We check death notices daily and will notify your executor that we hold a signed will. Your documents are kept confidential and access to them is strictly controlled and requires production of identification.
Caring for your will
It is important that you do not write on your will or make marks on it. You should not staple or tape anything to it. You should not rip pages.
If you do any of those things, it can cause difficulty when it comes to making an application for a grant of probate of the will from the Supreme Court.
Witnessing of wills and capacity
A potential beneficiary under a will should never be a witness to it. It is the task of a witness to a will to form a view as to whether the person making the will has testamentary capacity at the time the will is made.
A person can only make a will if they understand what they are doing (testamentary capacity). If there is doubt as to whether a person has testamentary capacity (for example, the person has an illness which may affect their mental capacity), it is advisable to discuss that with us.
We can advise how best to ensure there is evidence of the testamentary capacity of the will maker at the time the will is made. This would usually include medical advice, and extra care should be taken by the witnesses to the will to document their observations of testamentary capacity.
WILLS
Your will is the key document which determines who is entitled to your assets when you die. Often a source of dispute, it is important to obtain objective legal advice to ensure that your wishes will be carried into effect.
Intestacy
If you do not have a will, you are said to die “intestate”. The rules of intestacy are complex and antiquated. They are set out in legislation. Who gets your assets depends on who survives you – but it is not automatically the case that your spouse, or your children will be entitled to your assets. Most likely, there will be a number of beneficiaries who will be entitled to different shares of your estate – which is a sure path to an outcome which you did not intend.
Executor
The starting point is to consider who you want to be in charge of winding up your estate. This person is called your executor. It is sensible to ensure that you appoint an executor who is likely to survive you for some time – because when they die, in most cases their executor will become your executor!
It is also sensible to appoint a substitute executor – in case the first named executor dies before you or cannot act (or prefers not to act) as executor. You could also consider appointing joint executors.
Often the choice of executor requires consideration of family relationships and dynamics. It is an important role and you should choose your executor carefully.
Guardianship
If you have children under the age of 18, you should ensure that you have appointed a legal guardian under your will to make welfare decisions for those children - decisions that you would have normally made for your children.
If one parent dies, in most cases the surviving parent will be the legal guardian of the child. If someone, such as a family member, wishes to challenge this on the basis they do not think this would be in the child’s best interests (for example because of violence or drug/alcohol abuse by the surviving parent), a Court order will be required. This is a family law matter.
Therefore, if you are a sole parent, as the other parent has already died, then it is important to appoint a guardian in your will. Also, if both parents are alive, but die at the same time, then it is important that they have appointed guardians in their wills.
When there is no specific provision in the will for guardianship of the children, then an application may need to be made to the Court. The person chosen by the Court may not necessarily be the person you would have chosen to care for your child.
A guardian appointed by will does not have to have the children live with them (though they may). The guardian makes the major long-term decisions for the children, including where they will live. Therefore, it is very important to think carefully about who you name as guardian.
Beneficiaries
A range of issues arise in relation to beneficiaries you name in your will (that is, people you are leaving something to). You can leave your beneficiaries assets, or income from assets, or both.
Where you have a beneficiary under 18, as they are not entitled to own property, you can put in place an arrangement that allows your executor, or someone else, to manage the funds on their behalf (including advancing funds for education and so on).
You may also consider that a young adult beneficiary should have guidance, and so nominate an age at which they get full control of their inheritance, and leave someone else (such as the executor) in charge until that time.
Any asset which you do not leave to a specific beneficiary in your will forms part of the “residual estate” – which has important consequences for payment of costs and expenses of the estate since they are usually paid out of the residual estate. This means that those people getting specific gifts will not have their gift reduced by those costs.
And don’t forget that there may be tax payable from your residual estate.
Testamentary Trusts
Testamentary trusts are trusts which are formed under a will. The terms of the trust are contained in the will, but the trust is not formed until your death.
Testamentary trusts can be complex documents and are not necessary in all cases – but they can be useful where beneficiaries might be able to take advantage of tax benefits, or where it is desirable to protect estate assets from creditors or family disputes.
With an understanding of your family circumstances, we can advise you as to whether a testamentary trust might be useful, and how it could be structured. Legal and accounting advice are important considerations when considering testamentary trusts.
Other trusts
If you have a family trust, or another type of trust, the assets of the trust will not fall within your estate. You cannot “leave” the trust assets under your will.
But you can leave “control” of the trust to a person and we advise on how you can achieve that. In doing that, it is important to consider the terms of the trust instrument which may provide for the transfer of “control” of the trust after you die – but those provisions will often be out of date and should be reviewed carefully.
Superannuation
Superannuation is a form of trust - and in most cases is not an asset which you can pass to your family under your will.
However, superannuation death benefits can be passed to your estate in some circumstances (including if you have made a binding death benefit nomination which directs your superannuation trustee to pay the death benefit to your estate – for information on BDNs, see here). In that case it is important to consider whether your will should state how the superannuation death benefits are to be distributed amongst your beneficiaries.
Joint tenancies
If you own land as a joint tenant with another person, your interest in that land will pass to the surviving joint tenant when you die. It will not form part of your estate and will not pass under your will.
Make sure you take that into account when you prepare your will.
In some circumstances, it may be possible to sever the joint tenancy (it then becomes a tenancy in common which you can leave to a beneficiary under your will) and we can advise you as to how that can be done.
DISPUTED ESTATES
Even the most carefully prepared will can be disputed (challenged) by beneficiaries or potential beneficiaries. But a well-prepared will can take into account the likelihood of the will being challenged, and estate planning strategies can reduce the risk of your wishes not being carried into effect.
Examples of family circumstances which can increase the risk of estate disputes are multiple marriage or de facto relationships, children from two or more relationships, a child with a disability, children in very different states of financial security, and any will where children are not treated (more or less) equally. If your family relationships fall within any of those circumstances, we recommend that you obtain legal advice.
Inevitably, disputed estates result in significant legal expense, delay in administration of the estate, emotional upset and – perhaps most importantly, your wishes not being carried into effect – at a time when you are not there to explain what you wanted.
If you are unfortunate enough to be involved in an estate dispute, we can advise you in all aspects of estate disputes, including representation in Supreme Court proceedings pursuant to the Family Provision Act 1972 (WA).
If you have complex family relationships (including second or subsequent marriages or de facto relationships or children from different relationships or step children), or children with very different needs or with a disability, we recommend that you obtain legal advice about how to best manage those complexities to avoid future disputes in relation to your estate.
BINDING DEATH BENEFIT NOMINATION (BDN) (preferably non-lapsing)
Because superannuation is not an asset which you can leave under your will, it is important that you leave instructions to the superannuation trustee as to how you want your superannuation distributed.
Those instructions are contained in a Binding Death Benefit Nomination. BDNs can be of 2 types – lapsing and non-lapsing.
A lapsing BDN usually needs to be replaced every 3 years. A non-lapsing BDN does not expire. We recommend that you have a non-binding BDN – but that you review it regularly to ensure that it reflects your wishes as your circumstances change.
Beware! – if you don’t have a BDN, or your BDN has lapsed, your superannuation trustee has a discretion as to who receives your superannuation death benefits. And the trustee might not do what you intend!
If you do have a BDN and it directs your superannuation trustee to pay your superannuation death benefits to your executor, you should consider whether that is wise and whether there is any chance of your estate being disputed.
And while you are checking with your superannuation fund for a BDN, we recommend that you check your life insurance death benefit to ensure that it meets your requirements.
See here for more on superannuation and your will.
ENDURING POWER OF ATTORNEY (EPOA) – see also SMSF
Every day you exercise your legal powers in ways which you probably don’t give any thought to. You might use a bank account or sign a contract. You might pay bills. You might deal with Centrelink.
If you have a superannuation fund, especially a self-managed fund (SMSF), you might sign documents to manage the Fund.
If you lose legal capacity, you can no longer do any of those things. Someone else will need to be appointed to do them for you. If you don’t have an EPOA, your family will most likely need to make an application to the State Administrative Tribunal for an administration order appointing someone to do those things for you. Your administrator will have to file financial reports.
An EPOA will avoid that problem.
An EPOA can appoint up to two people to be your attorneys. If you appoint more than one person, you need to decide whether you want them to act jointly (they both have to agree and sign) or jointly and severally (they can act together, but they can also act separately without the knowledge or consent of the other).
Relevant considerations include where your proposed attorneys live (and if more than one, whether they live close to each other). This is important when documents have to be signed by two attorneys.
We also recommend that you nominate one or two substitute attorneys – in case your first nomination dies or loses legal capacity or no longer wishes to act.
SELF MANAGED SUPERANNUATION FUNDS (SMSF)
A word of warning – if you have an SMSF, you should have an up to date Enduring Power of Attorney.
See here for more information.
If you don’t, your SMSF may become non-compliant if you lose legal capacity. At the very least, your SMSF may not meet the trustee/trustee directorship requirements of the superannuation legislation if you do not have an attorney who can act in your place in those positions.
ENDURING POWER OF GUARDIANSHIP (EPOG) (with or without an advance health directive)
Whereas an EPOA deals with your legal and financial decision-making capacity, an EPOG deals with decision making in relation to your well-being and lifestyle.
If you are no longer capable of making those decisions yourself, who do you want to appoint to make them for you?
It is common practice now for hospitals and accommodation providers (such as care facilities) to request an EPOG so that it is clear who has the power to make decisions for you which might affect where you live, what medical treatment you receive, and who can see you.
If you wish to include directions in relation to medical treatment which you do or do not wish to receive when you don’t have capacity to give those directions yourself, you should consider having an Advance Health Directive (AHD). An AHD is a binding instruction to health practitioners which requires them to respect your wishes, even if other family members ask for treatment which is against your wishes.
We recommend that AHDs be prepared in consultation with your treating health practitioners.