Five Estate Planning Mistakes To Avoid
First published on March 15, 2018
Contrary to common belief, estate planning is not just for wealthy high flyers. Preparing for the transfer of your assets after you’re gone is crucial to ensuring they actually go to the people you intend them to. Life insurance, pensions, real estate, cars, personal belongings, as well as debts, can all be part of one's estate. However, there are few traps to be mindful of in planning for a smooth transfer of your assets to those you care about.
- Not preparing a plan at all
The most common estate planning mistake is not preparing a plan at all. According to the Australian Bureau of Statistics, half of all Australians pass away without a Will. This can have a range of unintended consequences for beneficiaries, including delays in settlement, assets going to the wrong parties or the Will being contested at great expense. Blended families, in particular, can encounter problems settling an estate when the deceased does not have a plan in place.
- Confusing a Will with an estate plan
Most people have a Will, but not everybody has an estate plan. Both documents should be updated regularly to cover changes in personal circumstances such as having children and retirement. A Will is a legally binding document that details your wishes regarding the distribution of your assets upon your death. In contrast, an estate plan is an all-inclusive set of documentation that explains how every facet of your life is to be dealt with before death (e.g. powers of attorney), as well as after death.
- Not setting up a binding death nomination for superannuation
Believe it or not, superannuation does not constitute part of your estate. The transfer of your superannuation savings after you’re gone is at the discretion of the superannuation fund’s trustee (according to the rules of most superannuation funds). Setting up a legally binding death nomination will override the superannuation fund’s trustee discretion and instruct them how to distribute the proceeds of your estate. For a death nomination to be binding, only ‘dependants’ such as a spouse and children can be nominated.
- Choosing the wrong people
Choosing the right person as executor of your estate is crucial for the smooth transfer of assets after death. While you may think your spouse or child may be best suited to handle the affairs of your estate when you are gone, having a vested interest in the distribution of assets can be problematic. Another common mistake is appointing someone lacking the legal knowledge, competency or organisational skills required to efficiently conduct estate administration. Appointing a third-party executor such as a Trustee Company can be a prudent measure in these instances.
- Forgetting to plan for tax
Expert estate planning can help avoid tax pitfalls. For example, capital gains tax becomes payable in the sale or disposal of certain types of property (for example a holiday home). Many people arrange for the distribution of assets but only focus on the face value of those assets. Failing to plan for this may mean that the value of your estate is eroded by taxes.
While estate planning can seem daunting, getting advice from a professional trustee company is the first step to protecting your loved ones and ensuring they are cared for long after you are gone. For advice or more information call our colleagues at Tasmanian Perpetual Trustees on 1300 138 044 or visit www.tasmanianperpetual.com.au
Information is current as at 19 February 2018. We recommend you seek independent tax advice. This is general advice only and does not take into account your personal objectives, financial situation or needs and you should consider whether it is appropriate for you.