This is the second article in a three-part series to help you make key decisions about your estate planning. In this article, we step through the key things you will need to think about when putting in place a legally valid and effective Will.
Part 1 of our series helps you understand how you own your assets, and what impact this has on your estate planning.
Part 3 of our series sets out what documents you need to get in place in case you lose your mental or physical capacity for a period of time, e.g. if you are hospitalised with a serious condition.
In this article we cover the important questions you need to answer to put in place an effective Will, namely:
- Why should you make a Will?
- What are your ‘gifting options’ – who gets what?
- How do you fairly divide your assets if you are in a ‘blended family’?
- Who are the people you must involve in your estate plan?
Why do I need a Will?
If you die without a valid Will (i.e. die ‘intestate’) then your assets will be distributed according to the law. Each state has its own rules about who gets what. For example:
In South Australia, the first $100,000 plus half of the remaining assets go to your spouse. The balance of the estate is divided equally between your children.
In New South Wales, if you have a spouse and children with that spouse, then your entire estate passes to your spouse. However, if you have a spouse and children from another relationship, then your spouse gets $350,000 plus half of the balance, and the rest is divided among your other children.
This is often not what you intend.
If you have children who are under 18 then disputes may arise as to who should have legal guardianship.
Another problem is that your relatives will need to apply to the Government for the right to deal with your assets and exercise guardianship over your children. This can be a time-consuming and stressful exercise.
The crazy thing is that putting a good Will in place is not that hard. We can help you get this done.
How will you pass your assets to your loved ones?
There are two ways you can pass assets to your loved ones.
You can make an ‘outright gift’
You can pass an asset ‘outright’ to your beneficiary. This is a simple ‘gift’ and means the asset ends up in the ‘personal name’ of your beneficiary. Your beneficiary can then deal with the asset as they see fit.
This is the simplest option, but there are downsides. Because your beneficiary will then hold the asset in their own name, the asset is then exposed to any person who makes a claim against the beneficiary. If your beneficiary carries on a risky profession or trade, owns their own business, is in a shaky relationship, or is a director of a company, then this may not be the best way to leave them their inheritance. It may end up being taken away from them.
Another reason to avoid an outright gift is that all the income and gains from the asset will accrue only to that beneficiary. This may push them into a higher tax bracket, and mean that there is less left over to look after your beneficiary and their family.
You can use a ‘testamentary trust’
The other approach is to ‘package’ the assets within a ‘testamentary trust’ for the beneficiary. Under this option, the assets pass into a ‘protected vehicle’, that holds the assets for the benefit of your beneficiary. It is very much like the well known family trust. People who make claims against the beneficiary are less likely to be able to get their hands on the asset, and the income and gains from the assets can be spread around and avoid the top tax brackets.
If you have ‘vulnerable’ beneficiaries – perhaps children under the age of 25 who may not make good decisions, beneficiaries with disabilities, family members who mismanage their money or even children going through marriage difficulties – a testamentary trust is a good option.
For beneficiaries who own their own businesses and may be vulnerable to third party claims, including from a trustee in bankruptcy, a testamentary trust will protect the assets you leave them.
Testamentary trusts also give your beneficiaries great tax options, including the ability to distribute up to $20,000 to children under 18 ‘tax-free’.
Finally, testamentary trusts can keep your assets in your ‘bloodline’ so they do not end up going to another person should your spouse re-partner at some time after your death.
We can help you to choose the best way to leave your assets, and then set up your Will in an appropriate way.
How do I look after my blended family?
Many people re-partner and face the conflicting priorities of looking after their new spouse, and providing for their children from a previous relationship. There are a number of strategies that can help you resolve this conflict.
Life insurance. Having a life insurance policy in place is a good way to increase the size of your estate, so that you have more assets to look after everyone. This is particularly suitable for younger couples.
Superannuation. You can put in place a binding death benefit nomination so that your super ends up where you intend, i.e. either to your spouse, your children, or a combination of both. If you leave this to chance, then it all may end up with one or the other, which may conflict with your estate plan.
Accommodation for life. One way to bridge the gap is to leave your spouse with an income stream and the use of your house during their lifetime, but then provide that what is left of these assets on your spouse’s death passes to your own children. This strategy may be used in combination with some direct gifts to each of your current spouse and your own children.
Deed of Mutual Wills. This is a key document for ensuring great outcomes for blended families. A Deed of Mutual Wills acts like an ‘umbrella’ over all your assets – of both you and your current spouse – and sets out a clear plan as to who gets what and when. The beauty of this document is that it will continue to protect your spouse and children after you have passed away. Your spouse will not be able to change their mind and give what you have left them to someone you do not intend.
We can help you to implement a strategy to ensure that both your current spouse and your own children are properly provided for, and the chance of an all-out dispute is minimised. Call us on 1300 654 590 or email us.
Who should be involved in my estate plan?
Part of your estate plan involves choosing who you trust to look after your loved ones and assets when you are no longer around.
Who will look after your children? (your Guardians)
Let’s first deal with your most important ‘assets’ – your children!
If one of you dies before your children reach 18, then the survivor will automatically continue as their legal guardian. However, if you have sole guardianship of your children, or if you and your spouse both die, then who has authority will depend on whether you have made appropriate plans in your Will. If you have nominated a guardian in your Will, and they consent to act, then things will run pretty smoothly. However, if you have not given a direction in your Will, then things can quickly become complicated and stressful for your children and wider family. To start with, someone will need to step forward and apply to the Government for the legal authority to act as your children’s’ guardian. If there is a dispute between your family members, then this can be very stressful for your children.
If you have children under 18, then for no other reason, you need to make a valid Will and appropriately appoint one or more trusted people to be their legal guardian.
Who will manage your estate? (your Executors)
When you die someone needs to step forward and manage your assets, and then distribute them to your heirs. If you have a Will in place, then this role is fulfilled by your Executors appointed under your Will. If you don’t have a valid Will in place, then someone will need to apply to become the legal ‘Administrator’ of your estate. This is a much more complicated and expensive process.
Your Executors are responsible for ‘administering your estate’ after you have died. This means they must:
- Locate your Will;
- Identify and locate your assets and liabilities; and
- Distribute your assets in accordance with your wishes – as set out in the legally binding sections of your Will.
When your Executor has performed their role, they either pass assets directly to your intended beneficiaries, or to the trustees of any testamentary trusts that you have set up.
Think hard about who your Executors should be. Executors have a huge responsibility. Sometimes a professional executor is the best option. ADLV Law offers professional executor services that can take the burden off your family and ensure an efficient and timely administration of your estate.
What to do next
Call us for a no-obligation chat on 1300 654 590 or email us. You will be put straight through to a great lawyer who will help you step through the process.
What to read next
If you have not already read the other parts of this series, then check them out here:
- Getting your estate planning up-to-date. Part 1: Ownership of Assets
- Getting your estate planning up-to-date. Part 3: What happens if you’re incapacitated for a period of time?
The information contained in this post is current at the date of editing – 13 July 2023.
