An Estate Plan – why you should have one
Many people immediately think estate planning is just having a Will in place. Moreover, when they think of a Will, they think they don’t need one as they are too young or don’t have enough assets. Estate planning is much more than that and set out below are some of the reasons why you should have an estate plan in place.
- An Estate Plan is not just a Will
An Estate Plan most definitely contains a Will. A Will can save your beneficiaries a lot of money when it comes time to winding up your estate after your death. However, having an estate plan also protects you whilst you are alive.
While you are alive, the following documents have great importance:
- an Enduring Power of Attorney; and
- an Enduring Power of Guardianship.
These documents are important as they principally come into play if or when you become incapacitated. If you are incapacitated, the attorney or guardian you have appointed will be able to make financial and medical decisions on your behalf. If you don’t have them in place, someone will have to apply to the State Administrative Tribunal seeking to be appointed your administrator or guardian (or both) in order to make the decisions for you. This process of the tribunal appointing someone could easily cost $5,000 or more if you have assistance from a lawyer. Further, if family members object to the person being appointed, the process can be dragged out and costs can escalate.
If you die without a valid Will and you have children under 18, you will have no control over who receives your assets and who may become the guardian of your children. Don’t assume that if you don’t have a Will, your spouse will receive everything. This is far from the reality. A relatively complex formula set out in section 14 of the Administration Act 1903 (WA) outlines how your estate would be distributed if you were to die without a valid Will (see Section 14 Administration Act).
- Joint ownership v Your Estate
There are multiple ways assets can be owned and one way is jointly. For example, property and bank accounts can be owned as joint tenants. When the first owner dies, ownership is transferred by survivorship directly to the other joint owner. Jointly owned assets do not fall into the first deceased owner’s estate.
To protect assets from a subsequent challenge against a parent’s estate, some parents choose to hold assets jointly with a child or children to ensure that that child or those children will inherit those assets when the parent dies.
However, what you might fail to consider are the possible tax implications of transferring assets and the possibility that you may be putting their assets at risk if your child becomes involved in litigation, or goes bankrupt or ends up in a family law dispute.
- Superannuation and life insurance
Don’t forget superannuation and life insurance. Your Will is not the be all and end all.
If in your Will you have directed that your life insurance or superannuation be paid to your new spouse, but you haven’t contacted the insurance company to change your superannuation nomination in which you directed the superannuation (and death cover) to your former spouse, then there is a risk that your former spouse might still receive the superannuation and death cover.
This is a key reason why you should take advice and have a proper estate plan. An experienced estate planning lawyer will advise you and help you to consider all of these issues so that they reflect your current circumstances and wishes.
- Simple Will or “complex” Will
You may think that you only need a so-called “simple” Will in which you leave your assets to your spouse (and vice versa) and then to your children. However, if any of the potential beneficiaries are “at risk” insofar as they may be drug dependent, or have family problems or they are at risk of bankruptcy, you may need to consider a more sophisticated Will which might include a testamentary trust or trusts. Each person is different. Make sure you take advice on what is best for you.