What is Estate Planning?

In olden days, land was owned by the family or tribe. When the chieftain or patriarch died it was passed onto the next in line or male son etc.

In the last 200 years or so transfer of land and other assets is known by the term “Estate Planning” . Nowadays it is even referred to as “legacy planning“.

You maybe thinking, isn’t this a lawyers domain, why are financial planners delving into this area ?

A financial planner or a CFP^® cannot prepare a Will and the other related documents but as the trusted adviser they can facilitate the discussion with an estate planning lawyer.

For example, many do not realise that superannuation is an asset that can remain outside or inside the Estate.

You can control the outcome depending on how you draft your Will and make your beneficiary nominations within Super.

Strategic financial planning involves discussions with the client’s solicitor and tax accountant in order to deliver the best result for the client.

Key Components of Estate Planning

Will

Most people understand what a Will is and how it functions. In my years as a financial adviser, clients queried on using a Post Office Will kit and getting it witnessed.

They argued that their situation is not so complex and lawyers are so expensive !

However, this where the famous line –” You don’t know what you don’t know” comes into play. You may think your situation is simple, however when an estate planning lawyer listens to your family dynamics and points out how someone could challenge the Will or where one of your children need to be protected etc it proves that a simple Will kit will not suffice.

When you don’t prepare a Will and you die it is called intestacy. Courts in your state will decide how the assets are to be distributed.

You are still regarded as intestate if it has not been witnessed correctly or you were of unsound mind when you prepared it.

When should you get a Will prepared?

The following are some of “trigger” events when you should consider preparing one. This is not a comprehensive list but some key milestones people go through in their lives.

Your Will should also be reviewed in case any of these events reoccur.

The next document is a power of attorney. There are several variations of this document as explained below.

Power of Attorney(POA)

A POA is a very powerful document that allows you (grantor) to give another person(grantee) the power to act on your behalf. It can have a broad scope, basically that person becomes you or a limited scope – like a property purchase etc. You need to carefully make this decision as there have been horror stories of this document being misused.

It is also known as a General Power of Attorney or even a Financial Power of Attorney.

Do bear in mind if you become of unsound mind this document is no longer valid. You need another document called an Enduring Power of Attorney.

Enduring Power of Attorney(EPOA)

An EPOA ensures the validity of the POA even if you are legally incapable of making a decision. Normally for cost reasons a regular lawyer may not prepare this document. But once you understand the repercussions of not having one you realise that it is an important document.

Enduring Guardian (NSW)

A person you appoint to make decisions about your health and lifestyle when you are not in a position to make these decisions is your enduring guardian. A POA or EPOA will not work in a hospital situation where a decision regarding treatment choices need to be made. Some people refer to this as “Medical Power of Attorney“.

This document is referred to by different names in different states. In Victoria it is called Enduring Power of Guardianship. In Queensland it is known as an Advanced Health Directive(AHD). The point to emphasis here is that you get a document that allow you to make health and lifestyle decisions.

There is also another document called the “Advanced Care Directive” which is sometimes referred to as a “Living Will.” If they are both made then you have the flexibility to adjust your Advance Care Directive in the future depending on your health.

Testamentary Trust

Normal trusts are also known as discretionary family trusts and if there are minors(under 18 ) as beneficiaries they are subject to the high tax( i.e. 66% on income above $416 and 45% of income above $1,307). However if a trust is established under a person’s Will it is called a “Testamentary Trust” and these penalty provisions do not apply.

You cannot create a testamentary trust after the person dies.

It has to be incorporated in the Will.

This document can save thousands of dollars in tax especially in the case of families with young children and a non working spouse.

For e.g. Suppose a man dies. His dependants are, his wife(non-working) and three children under the age of 18 . He has the provision for a testamentary trust to be created in his Will. This means the family can receive annual tax free income of over $80,000 p.a.

Each of them can receive $18,200 ( tax free threshold) plus $445 ( Low Income Tax Offset) per annum.

If he had not made provision for this trust their annual tax free income would be -$20,542 plus $1,248 ($416 X 3 children) which equals $21,790.

This has a big impact to their finances which means the capital sum will last much longer and the wife is not forced to go and look for a job immediately.

Additional Resources

Legal Aid NSW

This organisation helps people with their legal problems. They primarily help in areas of criminal law, family law and civil law. They regularly run webinars and their website even hosts pre-recorded ones. Look here to know more-https://www.legalaid.nsw.gov.au/

NSW Trustee & Guardian

They are a state government agency which has over 100 years of experience. They can make Wills, POA and Enduring Guardianship. They also can act as your Executor and help in the administration of a deceased estate. They are transparent with their fees and if you are the recipient of the full Age Pension, DVA or Disability Pension your Will and Estate Planning documents are made at no charge.

They do charge an administration fee if they manage the Estate for you and that is a decision you need to make after understanding the fees involved.

If your Estate is complex and you do not have anybody to appoint as an Executor it maybe worthwhile considering their services.

Go to their website to read more in detail –https://www.tag.nsw.gov.au