Estate Planning – Just a Will?
When it comes to managing our affairs during our lifetime, we are all focused on increasing our wealth and hopefully therefore our lifestyle, reducing our taxes to the minimum, and generally getting the best value for the monies we have accumulated.
Unfortunately, we can be quite blasé when it comes to ensuring that we have the same level of commitment to passing on wealth to our beneficiaries.
Most people have a Will to help in this regard, yet many do not take the time to understand the limitations that a Will may have.
For instance, if you have a family trust, superannuation, Self Managed Superannuation Fund, or a private company, these different entities do not form part of your estate and are not covered by your Will.
There are many options in regards to these different entities and a range of potential outcomes that need to be considered.
I recently met with a young mother with a child under 2. The child’s father tragically passed away in a car accident, with the bulk of the estate being made up of superannuation. As there were no binding nominations or directions made by the deceased to his super funds, in the end claims were made:
- In the child’s name;
- By the child’s mother;
- By additional third parties.
The situation was further complicated as the deceased had not drafted a valid Will.
Half of the estate was awarded to the young child, to be held in trust by the child’s mother until the child turned 18. The remaining super continued to be claimed on by multiple parties.
Putting in place a direction to the trustee of the super fund could have avoided this issue entirely, as well as reduced the stress involved for all parties during the process.
There are a number of directions that can be made:
- Non-binding nomination
This is a general direction for the trustee of the fund to consider paying the benefits to the member’s desired beneficiary. However, it is not binding on the trustee, and therefore the outcome may not be as originally intended;
- Binding nomination
A binding direction to the trustee that the death benefits must be paid to the nominated beneficiary. With this type of nomination the trustee is given no discretion.
- Lapsing and non-lapsing nominations
- Lapsing nominations generally remain in place for a period of time (3 years is the norm). Once the 3 years have passed, the nomination is no longer providing directions to the trustee. It is important to review and renew nominations when required.
- Non-lapsing nominations reduce the risk of a nomination not being in place at time of death. However, is it still the correct beneficiary? Our personal circumstances change, and leaving the nomination as your now ex-partner may not have been your intentions. Without updating and reviewing your nominations this is a very real risk.
Other factors also need to be considered such as tax. Where a death benefit is left to a spouse the benefits are received by the spouse tax free. However, when left to an adult child, the benefits may include both a tax free and a taxable component, reducing the total benefits remaining for the adult children.
Regardless of the entities and assets that you have, ensuring that a considered approach is put in place for the eventual transfer of these assets to your intended beneficiaries is a must. Speak with your adviser today if you feel that your arrangements may need to be reviewed, as well as seeking advice from your solicitor on legal implications.
Giles Stratford
Principal / Financial Adviser
GradDipFinPlan AFP®
