An estate plan involves more than signing a Will and leaving it in a safe place. An effective estate plan requires consideration of several matters and ongoing review to ensure it reflects your testamentary wishes and covers unexpected events.

In this article we look at some misconceptions about Wills and estate planning and dispel some common myths. The information is general only and you should obtain professional advice specific to your circumstances before you undertake any course of action.

I have a Will – isn’t that an ‘estate plan’?

A Will is a great start to planning your estate, however a Will alone does not appoint a trusted person to look after your financial and property affairs when you are away or if you are incapacitated. Likewise, a Will cannot appoint a guardian to make health and lifestyle choices on your behalf if you are incapacitated, taking into consideration your morals and values.

Tip: Various legal documents form part of your overall estate plan. Think about what you would do if the unforeseen happened and you could no longer manage your affairs. Talk to you lawyer about the benefits of appointing an attorney or guardian to assist you if you are incapacitated.

Only the rich need an estate plan

This is certainly not the case. No matter what your financial status, an estate plan enables you to appoint a trusted person to administer your assets when you die, ensure your hard-earned property is left to beneficiaries chosen by you and not others, maximise the gifts and benefits you leave to your loved ones through appropriate taxation planning, and prepare for unexpected crisis (illness and incapacity) by appointing somebody you trust to deal with your affairs when you cannot.

Tip: Think about your current assets and the assets you aim to accumulate in the future – they soon add up. Think about who you would like to benefit from your estate and how you can maximise the value of your assets for your beneficiaries.

I can leave joint property to whomever I wish

The right of survivorship means that upon the death of an owner of a jointly held asset that asset automatically vests in the surviving owner/s, despite any contrary intention expressed in a Will.

Jointly held assets such as real estate often comprise the bulk of the estate’s value. For spouses and de facto partners, this may be ideal as many would simply wish the surviving partner to benefit. However, joint ownership may not be appropriate such as property held with certain other family members, non-family members or other entities, or property that remains jointly held after divorce or separation.

Tip: Review your assets (real estate, bank accounts, investments) and check how they are held. Your lawyer can assist in this process and if necessary, sever joint tenancies so that your share of property can be separately held and left to whomever you wish.

Superannuation is automatically dealt with in my Will

Many people assume their superannuation will be divided up in accordance with the wishes in their Will, but that is not necessarily the case.

Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ (defined by legislation), as determined by the fund trustee or in accordance with a Binding Death Benefit Nomination (BDBN).

Tip: Review your superannuation and life policies to determine whether you have in place a valid and current BDBN. Talk to your lawyer about the formalities required to execute a BDBN and strategies to minimise adverse tax implications on the payment of your death benefits to your beneficiaries.

If I die without a Will my assets go to the Government

If you die intestate your assets are distributed according to pre-determined formulae set by legislation in each state and territory. The rules attempt to reflect society’s ‘expectations’ as to who should benefit from a person’s estate. They provide a specific order of distribution to the deceased person’s next of kin.

The problem with these statutory rules is that they do not necessarily consider the wishes of a deceased person nor his or her unique circumstances.

Tip: Don’t rely on a statutory formula to determine those entitled to benefit from your estate. Although only in the most extreme cases will the Crown have a right to an intestate’s estate, a Will is essential to nominate with clarity your executor and chosen beneficiaries.

I need to update my Will when I have a child or more children, move or acquire new assets

You should always review your Will when your personal and financial circumstances change significantly. Your Will may already provide for children (or future children) and you may not need to update it for every change, but it is good practice to review it when you experience major changes in your life.

You should also be careful about naming specific assets in your Will, for example details of a particular vintage car that you may own. A gift in your Will of a specific asset of considerable value which is disposed of during your lifetime may fail and cause an unintentionally unequal distribution amongst beneficiaries.

Wills are generally drafted to provide flexibility with respect to the nature and value of assets held, and to provide for future generations (unborn children) and substitute executors and beneficiaries.

Tip: Flagging to review your Will each year, for example when your annual tax return is prepared, makes good sense. In many cases, no changes will be needed but it is good practice to make a habit of a regular review. If you separate, divorce, or your financial or personal circumstances change significantly contact your lawyer immediately to see how these changes impact your existing Will and, where necessary, prepare a new Will.

Conclusion

Effective estate planning takes time and careful consideration. If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

An executor is a person who will carry out the instructions in your Will once you have passed away.

In general, you can appoint any person as executor of your Will, this includes solicitors. It is not uncommon for a solicitor to be appointed executor of a Will. The advantage of having a solicitor as executor is their experience handling Wills, as opposed to someone who has never undertaken the role of an executor.

It is quite likely that whomever you appoint as the executor will have to seek advice from a solicitor while acting as executor anyway.

Why should I appoint my solicitor as executor of my Will?

If you have a complicated estate and family situation, it may be worth considering appointing a solicitor as executor of your Will.

Solicitors bring professionalism and experience to the role of executor. It easier for a solicitor to remain impartial and manage disputes, should any disagreements arise as to the contents of the Will.

An experienced solicitor can also ensure your Will is executed in a timely manner, communicate the progress of execution of the Will to beneficiaries and ensure account keeping is properly maintained.

What is required from a solicitor who is to become executor of my Will?

If you decide to appoint a solicitor as executor of your Will, they must notify you in writing to confirm they will be acting as executor of your Will and should include the following in a confirmation letter;

• Any entitlements they may be able to claim from carrying out instructions in your Will;
• Costs and charges for legal fees or executor’s commission;
• Any people who may not make a claim against the executor’s commission.

The solicitor must disclose their fee structure for your consideration.

Can a solicitor charge a fee for executing my Will?

Yes, they can! There are a few ways in which a solicitor can be paid for executing a Will, for example, a clause in the Will provides for a legacy to be paid to the executor/s or a rate of commission or right to charge for professional rates for non-professional work.

Solicitors acting as executors must ensure they comply with Legal Profession Uniform Rules when renumerating themselves for executing the Will.

The subject of executors’ remuneration has potential to become complex, hence we recommend you speak to one of our specialist lawyers to ensure you have everything covered.

Conclusion

An experienced solicitor is able to bring professionalism and impartiality to the role of executor. If a solicitor has accepted to take on the role of executor of your Will, they must notify you in writing to confirm they will be acting as executor. They can also explain their obligations to you as executor of your Will and the different ways in which they can be renumerated for carrying out your final wishes.

This area of law is extensive and can be overwhelming to understand. We recommend you speak with one of our specialist lawyers, who can ensure you have everything in order when it comes to appointing a solicitor as executor of your Will, as they will after all, be fulfilling your final wishes.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

The question of mental capacity is an important consideration in will-making and can be a contentious issue. How often do we hear family members arguing over a loved-one’s ‘state-of-mind’ and ‘what Grandad would have wanted’ when sadly, his memory and ability to make reasonable decisions comes into question. This may be due simply to age, deteriorating health or a combination of both.

A person must have mental capacity to make or update a Will – this is one of the key elements to ensure the validity of a Will and limit the possibility of it being challenged on the grounds of testamentary capacity.

One way of reducing conflict and a potential challenge to a Will is to ensure a loved one (particularly if aged or in declining health) is encouraged to regularly review his or her Will and estate plan before mental capacity becomes dubious.

The test of mental capacity

The test of mental capacity was established almost 150 years ago in 1870, in a legal case Goods v Goodfellow. The language used reflects the era, but the key elements remain relevant:

It is essential to the exercise of such a power that a testator shall understand the nature of the act, and its effects; shall understand the extent of property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.

Translated to a more contemporary understanding, the Will-maker must:

• understand the nature and effect of the Will;
• understand the extent of the property in the Will;
• understand the claims he / she ought to consider; and
• be free of illogical beliefs that are not in sync with his / her level of education and surroundings.

What happens if a Will-maker lacks mental capacity?

Lawyers must ensure that a Will-maker’s interests are protected and have an obligation to question a Will-maker’s mental capacity if it is in doubt. The lawyer must be able to obtain instructions directly from the Will-maker and be satisfied that he or she understands the legal implications of the documents being prepared and signed.

Given the many possible perceptions of an ‘unsound mind’ or being free of ‘insane delusions’, this is not always an easy task. A testator, who is intermittently unsound, may still make a valid Will if it can be shown that the Will was made at a time of sanity.

Unfortunately, once the capacity of a Will-maker comes into question, additional steps are required to confirm his or her ability to properly understand the nature of the contemplated document.

At the least, this usually requires obtaining medical and / or psychiatric reports from practitioners which may add expense and cause additional stress and anxiety to the Will-maker and his or her family. The extra time required to obtain these reports and to establish mental capacity is itself an issue, particularly when a Will-maker’s health is declining.

If the Will-maker’s capacity cannot be established, then the Will cannot be made or an existing Will updated.

An outdated Will that clearly does not express the intentions of the deceased can be a major disappointment to the deceased’s family and loved ones.

If a Will is made or updated at a time when mental capacity is in dispute, a contentious challenge and / or a family provision claim may follow, after the testator dies.

What happens if no Will is made?

If no Will is made, then the Will-maker will die intestate and his or her assets will be distributed in accordance with pre-determined formulae set out in legislation in each state and territory.

Essentially, these rules provide for a specific order of distribution to the deceased person’s next of kin – those who receive an inheritance will depend on the individual and family circumstances of the deceased.

The distribution of an intestate estate generally reflects the moral expectations of society, but not always the wishes of the Will-maker. There are numerous reasons why a Will-maker may have wanted to leave out an expectant beneficiary or indeed include non-family members in the distribution of his or her estate. For a variety of reasons, the testator may also have wanted to allocate unequal shares to beneficiaries whom under the legislation would otherwise share equally.

Dying intestate therefore cannot guarantee that the Will-maker’s assets will be distributed as he or she intended.

Points to remember

The problems of intestacy or having an outdated Will can be avoided by ensuring a Will is made whilst a person is in good health and of sound mind. Some points to remember:

• Mental incapacity can occur progressively or suddenly and can affect the old, the middle-aged and the young. Whilst we can all exercise caution and moderation, nobody is exempt from the fragility of life and an unpredictable future.
• Determining mental capacity when in doubt is not straight-forward, will exacerbate the will-making procedure and add undue cost and stress to the process.
• Planning your Will now and making the effort to review it regularly will safeguard your estate from the possibility of unintentional distributions.
• Encourage your loved ones to review their Will and other estate planning documents when there is a change in personal or financial circumstances and particularly when they are ageing or in deteriorating health.
• Lead by example and make or review your own Will and estate plan!

Summary

The real intentions of a testator cannot be established once he or she has died or is permanently incapacitated, unless a valid and up-to-date Will exists. Spending time on your estate planning today will avoid the uncertainty, additional costs and stress of trying to get it right when it is too late.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

An estate plan involves more than signing a Will and storing it in a ‘safe place’. Estate planning requires a holistic approach in consideration of a person’s present circumstances and foreseeable future.

A plan needs to consider who matters, what you have now, what you may have in years to come, and what your final wishes will be. Your lawyer’s role is to document these wishes to ensure they are legally enforceable and can be carried out when you die.

This article considers what an effective estate plan may entail and explores some of the thought processes involved in preparing an estate plan. The information is for general purposes only and we recommend obtaining legal advice specific to your circumstances when planning your estate.

What is effective estate planning?

An ideal estate plan will:

• Appoint a trusted person or persons to manage your affairs (attorney / guardian) if you are incapacitated; and a legal personal representative (executor / trustee) to administer your estate (and any associated trusts) after you die.
• Nominate your intended beneficiaries with certainty or provide for a class of beneficiaries to ensure that your assets pass only to those you intend to benefit.
• Prevent undue stress and expense by minimising uncertainty and potential family provision claims.
• Provide flexibility in distributing assets in anticipation of the present and future needs of beneficiaries.
• Maximise the value of your estate through effective tax planning to minimise capital gains, and income tax payable by beneficiaries on their inheritance.
• If relevant, provide for effective business succession or the winding up of a business.

Steps in estate planning

Your family

Every family is different and there is no one-fit solution for all. You should start with an overview of your family circumstances and a list of all family members whether or not you would like them to benefit from your estate.

Acknowledging where there is conflict between family members and identifying any eligible persons who might claim on your estate will assist in devising strategies to reduce the potential for future claims.

Blended families are common and require special attention as there may be competing interests between past and present partners, biological children and step-children.

Choosing your executor and trustee

The executor and trustee will be your personal legal representative and should be chosen with care. For simple estates, a spouse or child / children (or combination) are usually appropriate choices to oversee the administration and finalisation of the estate.

For more complex estates, with business interests or which will have ongoing trusts, it may be preferable to appoint a professional with expertise in this area.

Similarly, if there is conflict within the family a ‘neutral’ executor may be more appropriate to ensure that the role is carried out with impartiality.

Powers of attorney, guardianship and advance care directives

Each jurisdiction in Australia allows for the appointment of an attorney, guardian and / or decision-maker to manage your financial, legal and / or personal affairs for a defined or ongoing period, and to make health-related decisions if you are incapacitated.

These documents provide for flexibility in choosing the type of functions to be carried out, and the duration for which the authority is given.

These documents form an important part of your overall estate plan by ensuring the ongoing management of your affairs by a trusted person if you are incapable. A lawyer will explain the relevant documents in your circumstances and for your jurisdiction.

Your assets

A detailed list of assets and liabilities will assist in determining the overall value of the estate, how and when assets should be distributed, the appropriate structure of the Will and whether a testamentary trust would be beneficial (see below).

You will need a precise description of the assets, their location, whether they are held individually or jointly and their value.

If you are including specific gifts, such as items of sentimental value, antiques, or artworks, these should be clearly identifiable and described in the Will.

Remember, your assets may change over time and this needs to be factored into your estate plan. A gift of a specific asset of considerable value which is later disposed of may fail and cause an unintentionally unequal distribution amongst beneficiaries.

Using a testamentary trust

In some cases, it will be beneficial for a Will to establish a testamentary discretionary trust. This is a trust that comes into effect after the will-maker dies. Administration of the trust is carried out by a trustee pre-appointed by the will-maker. The trustee determines how and when estate assets are managed and distributed.

If managed properly, the flexibility of a discretionary trust may allow beneficiaries to access the most advantageous taxation treatment with respect to their inheritance and can provide protection for at-risk or vulnerable beneficiaries from claims by creditors or ex-partners.

Even modest estates may benefit from having a testamentary trust, particularly where the will-maker is part of a blended family.

Your superannuation

Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).

Most funds allow members to nominate their intended beneficiaries through a BDBN. This process forms an important part of estate planning – without a valid BDBN, the beneficiaries may be decided by the trustee in accordance with the terms of the trust deed and the relevant legislation. This decision may not reflect what the will-maker intended.

Business succession

If you are carrying on a business whether as a sole trader, partnership or through a company, you will need to think about how you would like these interests dealt with after you die.

If you conduct the business as a sole director through a corporate entity, you will need to consider who will take your place as shareholder and managing director. Alternatively, you may wish for the business to be wound up.

Some partnerships will have buy-sell insurance in place. This is a policy allowing a surviving partner to acquire the deceased partner’s share so the business can continue.

Business succession planning also requires consideration of the intended beneficiaries and whether they have the desire, skill and competence to continue managing the business.

Conclusion

Effective estate planning takes time and careful contemplation. Your estate plan will usually comprise various documents to ensure the effective management and finalisation of your affairs so that your life’s efforts reward those you intend to benefit.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.