The essentials of estate planning

Key takeaways

• Preservation age: this is the earliest age where it’s possible in normal circumstances to access your super

• Estate planning professionals can assist in structuring the estate plan, navigating tax and any social security implications, ensuring compliance with legal requirements, and addressing any specific concerns or goals

• Estate planning is not a one-time set-and-forget task but rather an ongoing process.

Estate planning is a fundamentally important aspect of financial and legal management, as it enables individuals to ensure the orderly distribution of their assets after they pass away. It also helps to protect their loved ones from unnecessary anguish and disputes over the division of their estate.

A well-structured estate plan can help individuals and families navigate the complexities of wealth transfer, minimise tax and social security impact, and ensure that the deceased’s wishes are carried out.

Here, we explore the essentials of estate planning in Australia, including key components, legal considerations, and the importance of seeking professional guidance.

What is estate planning?

Estate planning is the process of arranging for the management and disposal of an individual’s assets, usually after their death, but it can also occur during their lifetime under certain circumstances, such as if the person is permanently incapacitated.

The process involves creating a comprehensive plan that outlines how assets will be distributed, who will be responsible for managing the estate, and how potential taxes and expenses will be addressed.

The key objectives of estate planning include asset protection, minimising tax liabilities, providing for loved ones, retaining any social security entitlements and preserving wealth for future generations of the family.

However, although you can start accessing some of your super once you reach your preservation age, you won’t have full access to your super until you’ve also met a condition of release.

Components of an estate plan

A well-structured estate plan typically comprises several key components. These include:

• Will: this outlines the distribution of estate assets after an individual’s death and appoints an executor who is responsible for administering the estate according to the terms laid out in the will

• Power of attorney: allows an individual to appoint someone they trust to manage their financial and legal affairs. An Enduring Power of Attorney is a special type of Power of Attorney that continues to operate when the person appointing them becomes incapacitated or unable to make decisions for themselves

• Enduring Guardianship: an Enduring Guardian is someone you appoint to make decisions about your health and lifestyle (as opposed to your legal and financial decisions, which are to be made by an Enduring Attorney). An Enduring Power of Guardianship will usually operate when the person appointing them is unable to make lifestyle and health decisions for themselves

• Advance care directive: also known as a living will, this allows individuals to express their wishes regarding medical treatment and end-of-life care in the event that they are unable to communicate those wishes in the future

• Trusts: a structure where a trustee (individual or company) administers assets for the benefit of designated beneficiaries, which are then given to the beneficiaries at a pre-determined later date. For example, a trust may be set up for a child but is only payable upon their 21st birthday. Trusts can be used to minimise taxes and protect assets

• Super: allocation of funds from your super is a vital component of estate planning in Australia, given the typically large sum of money involved. Addressing this as part of your estate planning ensures that the funds accumulated in your super account are distributed according to your wishes, and also in the most tax-efficient manner. You can nominate eligible beneficiaries to receive their superannuation death benefits. It is essential to review and update these nominations regularly to ensure they align with any change in your personal circumstances, such as marriage, divorce, or the birth of a child, and to ensure they remain valid and do not lapse

• Guardianship of minor children: for individuals with dependent children, naming a guardian can assist to ensure the children are cared for if both parents pass away This is usually done by a clause in each parent’s Will.

Legal considerations for estate planning

When creating an estate plan in Australia, it is essential to consider the following legal aspects:

• Validity: all estate planning documents must meet the legal requirements to be considered valid. It is advisable to seek legal advice to ensure compliance with relevant legislation, such as the Succession Act or Wills Act in each state or territory.

• Tax implications: estate planning involves considering the tax consequences of transferring assets to beneficiaries. It is crucial to understand the impact of capital gains tax, stamp duty, and income tax when making decisions regarding asset distribution

• Family law considerations: estate planning can be affected by family law matters, such as divorce or separation. You should consider how these factors may influence your estate plan and seek legal advice if necessary

• Capacity: to create a valid will, individuals must have capacity, meaning they must be of sound mind and understand the implications of their decisions. It’s important to ensure that the will is created when the person is in good mental health to avoid potential challenges in the future.

Seek professional guidance on estate planning

Given the complexity and legal considerations involved, it is highly recommended to seek professional guidance when creating an estate plan in Australia.

Estate planning professionals, such as estate lawyers, financial advisers, and accountants, can provide expert advice tailored to individual circumstances. They can assist in:

• Structuring the estate plan

• Navigating tax implications

• Ensuring compliance with legal requirements

• Addressing any specific concerns or goals

• Explore various strategies to protect assets

• Minimise tax liabilities

• Maximise the benefits for beneficiaries. This may include setting up testamentary trusts, establishing charitable bequests, or utilising superannuation strategies.

Regularly review and update your estate plan

Estate planning is not a one-time set-and-forget task but rather an ongoing process. It is vital to review and update the estate plan regularly, especially in the event of significant life events such as marriage, divorce, birth of children, or changes in financial circumstances.

Regular reviews ensure that the estate plan remains relevant, aligns with current objectives, and reflects any changes in laws or regulations.

Estate planning checklist

First, gather essential documents. These should include:

• Will: your last will and testament will specify how you want your assets to be distributed after your death

• Super death benefits nomination: collect documents related to your super account, including any insurance policies and your previous death benefits nomination

• Trust documents: if you are a beneficiary, trustee, or appointor under a family trust, gather the trust agreement and any related documents.

• Enduring Power of attorney: an enduring power of attorney appoints one or more persons to make financial and legal decisions on your behalf if you become incapacitated

• Enduring Power of Guardianship: an enduring power of guardianship appoints one or more people to make lifestyle and health decisions on your behalf if you become unable to do so

• Healthcare directive: an advance care directive (also known as a living will) outlines your medical wishes. Your Enduring Guardian can express your wishes relating to your healthcare on your behalf in the event that you are incapable of expressing them yourself. If you have not appointed an Enduring Guardian, you can nominate responsible persons in your advanced care directive to give effect to your wishes

• Insurance policies: collect documents related to life insurance, disability insurance, and critical illness insurance.

Then, make a list of assets, such as:

• Bank accounts: list all your bank accounts, including checking, savings, and investment accounts

• Real estate: keep records of any properties you own, including homes, land, or rental properties

• Investments: list your stocks, bonds, mutual funds, and other investment holdings.

• Super accounts: note your super fund details and any other retirement accounts

• Personal property: include valuable possessions such as vehicles, jewellery, artwork, and collectibles.

Next, decide who you want to inherit your assets. Consider immediate family members, relatives, friends, and charitable organisations. Specify the percentage or specific assets you want each beneficiary to receive.

If you have young children, designate a guardian to care for them if you pass away.

Bottom line: estate planning in Australia is a multifaceted process that requires careful consideration of various legal, financial, and personal factors. A comprehensive estate plan is one way to see that your assets are distributed according to your wishes, whilst minimising tax implications and giving yourself peace of mind, knowing that your loved ones will be provided for long after you’re gone.

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at August 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.