This article is going to be a discussion about the very grim, yet very necessary topic of what happens to your money when you die.
Most people avoid this topic all together as evidenced by the huge number of people who die without a will, but be assured, dying without a Will can often turn bad, leaving a lasting negative legacy, even for people with little assets.
The importance of having a valid will is that it helps ensure that your assets are distributed in accordance with your wishes upon your death. However, as you will learn below, a Will can also do a lot more than just deal with your finances.
If you die without a valid will, each state in Australia has its own law controlling who gets what.
Despite popular belief, the government does not get anything unless there are no living next of kin. It basically never happens as just about everyone is related to someone, however remote the relationship may be.
Before you get started though it is important to note that your will is not the only tool for passing on assets to others. In fact, in a lot of cases a Will only deals with a very small percentage of your assets.
This is because not all assets are or can be disposed of via a will. Some common examples are shown below.
ASSETS THAT MAY NOT FORM PART OF YOUR WILL
Your superannuation can pass directly to a nominated beneficiary.
A binding nomination can be made with your super fund (your super fund should have a special form for this) whereby your superannuation monies will go directly to the beneficiaries you have nominated and therefore will not be distributed via your will.
It’s important to know that there can be tax implications depending on who you leave your super to so you would need to check this. Generally speaking, where the receiving beneficiary is a spouse or child under the age of 18, there are no tax implications.
2. Joint Assets
Assets that are owned “jointly” automatically go to the surviving owner and therefore do not form part of the estate or Will.
The most common example is the family home which is often owned by a married couple as joint tenants.
On the other hand, assets owned as tenants in common can be disposed of via your will.
3. Life insurance proceeds
Proceeds from insurance policies cannot be disposed of via your will where the owner of the policy differs from the life insured.
4. Assets held in trust
For example, assets owned within a family trust again cannot form part of your Will. The best that can be done here is to ensure that the correct people are given control of the trust.
So as you can see, for a lot of people their will may actually only deal with a very small percentage of their assets. So whilst a Will is very important to have, it is only one component of the estate planning process.
OTHER IMPORTANT ISSUES TO CONSIDER
Choosing an executor
Your Will needs to appoint an executor who is given the responsibility of administrating your estate and ensuring that the instructions of the Will are carried out properly.
It goes without saying that you should choose an executor who:
- you trust,
- is unlikely to predecease you, and
- is happy to take on the responsibility.
You should also nominate an alternative executor.
Couples will often appoint each other as their first choice and, if they have one, an adult child or another close relative or friend as a back-up executor.
Alternatively, you could appoint a trusted adviser (such as your lawyer or accountant) or an authorised trustee company to be your executor.
“Professional executors” can often be quite an expensive path, so it is preferred that you go with someone else you know as this can be a much cheaper method. Your executor can always seek professional help which is still usually a lot cheaper.
Guardianship for children
For those with young children, your Will should appoint a guardian.
Obviously you should appoint someone who you trust and is likely to outlive you. The guardian does not have to take up the responsibility so it is important that you name more than one guardian in order of priority. A common choice is often siblings.
Whilst a more complex area (and more expensive will), you may want to consider the establishment of a testamentary trust within your Will as they can provide a variety of benefits including:
- Protecting assets from divorce. For example, a daughter may divorce her husband one year after a will-makers death. If the Will-Maker leaves her share of the estate to the daughter directly, it can be up for grabs in the divorce settlement by the son-in-law. However, if the daughter’s share of the estate was instead left via a testamentary trust that the daughter controlled, those assets could be protected from the divorce settlement.
- Tax savings. This is usually more applicable to circumstances where the estate has significant assets and there are infant children (i.e. under 18). Tax laws allow income that is distributed to children via a testamentary trust to be taxed at adult marginal tax rates rather than the substantially higher minor tax rates.
- Protecting assets from creditors of beneficiaries. As money is in the name of a trust and not the beneficiaries name correctly, assets in the trust can be protected from 3rd party creditors.
POWERS OF ATTORNEY
Whilst most people focus on the Will, Powers of Attorney are an equally important part of the overall estate planning process. Powers of Attorney are arguably something that every adult should have but very few do (eg: in the case of illness).
Powers of Attorney are important because they give the power to someone you trust to make legal decisions for you if you can no longer make those decisions yourself (eg: in the case of illness).
Obviously, you should only grant it to someone with whom you have absolute trust.
It is important to note that to grant a power of attorney, you must have the ‘mental capacity’ to do so. This is why it is important to appoint someone before they are needed to avoid hassles down the track.
The main types of Powers of Attorney to consider in Victoria are:
Enduring Financial Power of Attorney
This authorises the attorney to stand in your place and make any financial or legal decisions on your behalf.
By granting an “enduring” power of attorney (as opposed to a “general” one), the relationship still remains in place even if you lose your mental capacity.
Enduring Medical Power of Attorney
An Enduring Medical Power of Attorney gives your nominated attorney the ability to make decisions relating to your medical issues if you are not capable of doing this yourself.
WHERE TO FROM HERE
As you can see, a bit of thought needs to go into getting your Wills and Powers of Attorney done (which is probably why so many people don’t have them) but it’s an important and worthwhile exercise. At a time when loved ones are already grieving, a well thought out will can help alleviate any unnecessary additional stress.
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