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Estate Plan Components

Estate Plan Components

Estate Planning FactorsWe have already dealt with the three main Estate Plan components. 

We refer to your Will, Powers of Attorney and Advance Care Directives.

Now let’s explore some other facets of appropriate estate planning strategies. The first of these additional estate plan components is the matter of Child Guardianship.

Child Guardianship

Man and woman holding small child

If you are making a Will and have children, you need to consider how those children will be provided for. So, as the Will-maker, Your estate planning provisions need to account for this. That is, consideration of who will care for and raise any children under 18, after your death, should be made.

Should you appoint someone as a guardian, they are referred to as a “Testamentary Guardian”. It should be noted that this role comes with significant responsibilities. Specifically, a guardian appointed by you is given powers, rights and responsibilities to make decisions about a child’s care, welfare and development. 

Your testamentary guardian can make important life decisions on various matters. Appropriately, such matters as the education, health, leisure and religious instruction of your children could be included.

Guardianship Legal Considerations

Please understand that your appointment of a testamentary guardian does not necessarily mean your child will live with that person. If there is a surviving parent, the living arrangements and daily care of your child may remain the responsibility of that parent. Alternatively, it could be someone else named in this role in Family Court or Federal Circuit Court orders.

Something you need to know before appointing a guardian .. Under the Family Law Act, the Court retains a discretion to appoint another person (instead of the testamentary guardian). Such a scenario could arise if the Court deems that to do so would be in the best interests of your child.

A typical inclusion in the Will of a parent/s with children under the age of 18 may read along the lines of:

“In the event of my death I nominate the following person to act as Guardian of my children, which includes adopted children – (Child’s name), subject to their consent (if they have not explicitly or tacitly consented already): a) Guardian: (Guardian’s name).

It is my wish and direction that the Guardian ensures, whether through any financial or other income provided for my children through this, my Last Will and Testament, or any other trusts or superannuation funds, that:

  • my children are to lead a comfortable life;
  • have the best schooling where finances are appropriate; and
  • live in a manner they lived prior to my demise”.
What should be taken into account in appointing a guardian in a Will?

Before making the important decision of appointing a guardian of children in a Will, as a parent, you should take into account:

  • the relationship between the proposed guardian and your child;
  • the nature of the relationship between the guardian and the proposed executor of the will;
  • the location, age and health of the proposed guardian. For example, is it wise to appoint elderly parents as guardians?;
  • whether appointment as a guardian will affect that person’s income, finances and lifestyle, so that they are not able to provide the care you envisage for the children;
  • is a Statement of Wishes necessary to provide additional guidance on the raising of children under 18 in the event of the testator’s death?

Testamentary Trusts

Testamentary Trust Schematic

A testamentary trust is a trust that is established in accordance with the instructions contained in a Will.

As such, this trust allows a trustee, who is a third party, to manage assets on behalf of the beneficiaries of the trust.

If any person or organisation acts on your behalf or others, they must put their clients’ interests ahead of their own. Also, there is a duty to preserve good faith and trust. Therefore, the trustee requires being bound both legally and ethically to act in your and the other’s best interests.

You may choose to have a Will that includes instructions to establish a testamentary trust. This would be so that the trustee can distribute your assets to the beneficiaries outlined in your Will. However, such a trust is not created until after you have passed away. Also, note that it’s possible for your Will to have more than one testamentary trust provided for.

As another estate plan component, testamentary trusts can be helpful as a part of your overall wealth management strategy. This is because they provide instructions for distributing the assets within your estate. Even so, there are both advantages and disadvantages of such trusts that should be considered before you include one in your Will.

Points to Note:

  • A testamentary trust contains a portion or all of a decedent’s assets outlined within a person’s last Will and Testament;
  • If you have such a trust, note that it will not be established until after you pass away. The executor settles the estate as outlined in your Will;
  • You can name minors as beneficiaries, in which case your assets are paid out only when they reach a certain age;
  • The trust can also be used to reduce estate tax liabilities and ensure professional management of the assets;
  • A disadvantage of a testamentary trust is that it does not avoid probate—the legal process of distributing your assets through the court.

As is the case with many estate planning strategies, decisions relating to a Will’s structure can be quite complex.

Therefore, it is always advisable to consult with your Wealth-IQ adviser in the first instance when considering any testamentary trust provisions.

Statement of Wishes

Picture of lighthouse depicting

A Statement of Wishes is a non-legally-binding document that accompanies your Will.

However, it can guide your executors and trustees to ensure that your personal wishes are carried out. Also, please note that it is often referred to as a “Memorandum of Wishes” or a “Letter of Wishes“.

What does a typical Statement of Wishes look like?

Here is a common way to open your letter:

“I make this letter in reference to my last Will and testament dated the [insert date]. I wish, without imposing any legal obligation on you, my executor, that you act on it accordingly.”

The main reason you might consider writing this kind of document is to provide extra guidance to the executor/s of your estate, across certain sections of your Will, including:

  • Who to notify of your death, or in some cases, who not to tell.
  • The division of personal trinkets and jewellery or heirlooms
    Advise which beneficiaries in your Will you want to receive your belongings that hold more emotional than financial value to you
  • Potentially contentious decisions
    To provide reasoning to your Executor as to why a certain beneficiary is not named in a Will.
  • Care of your young children
    Offers guidance to guardians on how you would like your children to be raised. That is, their religious upbringing, education, and where they live. These details should be reviewed as the children grow up.
  • The location of important documents or assets
    Explain where your executor can find any deeds, insurance information, passwords or financial information that they may need to finalise your estate.

Please Remember

Your Statement of Wishes should:

  • be addressed to the correct person (e.g., your executor or the trustee of a relevant trust);
  • contain a statement to the effect that you understand that it isn’t legally binding;
  • state that it is not to be read as a formal testamentary document; and…
  • be marked as private and confidential.

Other Factors That Limit Your Will Provisions

Did you know that there are some things that you can’t give to beneficiaries via your Will?

Your Will can generally only deal with assets that you own in your sole name or that you hold as “tenants in common” with other owners (e.g., land or property).

If you own real estate with another person as ‘joint tenants’ and you die, the property will transfer to the other joint tenant. Consequently, it will not form part of your estate. The same applies for any shares that you own, or bank accounts in joint names. In both instances, this is very often the case with property and assets jointly owned by marital partners and therefore not assets that you can gift by your Will.

A properly constructed estate plan not only addresses those assets that pass via your Will. Other assets such as those held within a Trust or company that is not fully owned by you, or held within say, an SMSF (Self-Managed Super Fund) can’t be gifted through your Will.

You may be able to nominate in your Will a person to take control of the Trust however, your Will cannot distribute trust assets.

Superannuation Assets

Of special significance is any superannuation asset.

A vital estate plan component is your Superannuation. Firstly, superannuation is an asset that may or may not form part of your estate after you die. Reason being is that there are factors that will determine the outcome. Not the least of these are the types of Death Benefit Nominations (if any) made to the fund Trustees.

Depending on the rules of the fund, benefits can be made in the form of a lump sum, a pension/income stream (also subject to regulations) or both. As a member, you can execute a “Binding Death Benefit Nomination” (BDBN) which directs the fund Trustee as to where and how proceeds are to be paid upon your death.

One of the advantages of you having a BDBN includes keeping proceeds out of your estate. Accordingly, this reduces the risk of a claim on your estate being made by a disgruntled beneficiary. Also, certainty that proceeds will be paid to your intended beneficiaries and minimising payment delays is a further plus.

It is vital that you get appropriate advice from your financial adviser regarding the type of superannuation fund you have. Importantly, this includes you knowing what rules govern the fund regarding the treatment of your superannuation death benefits, along with any nominations. The taxation implications pertaining to your death benefits should also be considered.

Accounting for all these issues will then allow you to make informed decisions for your super death benefits as part of your overall estate planning strategy.

 

Business Assets

Picture of business continuation jigsaw piece under magnifying glassIf you run your own business, a significant part of your wealth may be tied up in the business. These same business assets may be held in various structures such as trusts, companies or partnerships, or even an SMSF.

Careful consideration should be given to who will take control of the entities that hold your business assets after the death or incapacity of a key individual in the business. Successful continuation of your business can be put in jeopardy if appropriate succession planning has not been put in place.

Failure to consider the impact of your death or incapacity on your business can also create problems for your personal estate. By their very nature, loans between you and the business, or personal guarantees for business loans can result in serious issues.

In consulting with your financial adviser, here are some considerations to make regarding your superannuation and/or business assets. For instance:
  • Do you have an up-to-date Binding Death Benefit Nomination in place for your superannuation fund?
  • Who do you wish to control your business, investment entity and assets?
  • Have Trust Deeds been reviewed or updated recently?
  • Have you recently reviewed your Company Constitution?
  • Are your business insurances current?
  • Do you have a buy/sell or other business succession agreement in place setting out the process if a business partner is incapacitated or dies?
  • Have distributions been made to you from a discretionary trust that remain unpaid? Moreover, have you loaned or contributed substantial amounts to a trust?

IN SUMMARY

It may seem that a lot of territory has been covered herein. However, there are even more estate planning factors that may need your contemplation.

Still, don’t allow this to dissuade you from seeking advice from your financial adviser. This is because he/she can assist you in ensuring that all relevant aspects of estate planning are addressed.

To have an initial friendly chat with an adviser, please feel welcome to contact us at any time.

Also bear in mind that it is likely that your adviser will require the services of other specialists to ensure that your estate is distributed correctly. 

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