Commonly overlooked estate planning matters
Estate planning is a complex business, making it easy to overlook some important considerations, potentially with costly results.
Aside from basic issues like forgotten assets (always keep written records) and inaccurate details (double check everything before signing), seven of the most commonly disregarded estate planning matters are as follows:
- Wills
Unlike many younger people, for over sixties the more common issue is not the lack of a will, but one which is out of date.
Out-of-date wills complicate matters for executors, can delay probate for your beneficiaries, and may not reflect your true wishes (imagine inadvertently leaving everything to your ex or omitting one or more grandkids!).
Update your will as your circumstances change – relationships (divorce, new partner etc), births and deaths, adult children getting married or divorced, exiting a business, asset sales, and so on.
Retirement often brings its own changes too – e.g. a sea or tree change, new boat or caravan – which also should be updated in your will.
- Letter of wishes
Wills are typically not read until after a funeral. As such, a letter of wishes is a useful addition for loved ones to have accessible immediately after your death.
It can cover everything from funeral arrangements, burial vs cremation, and where you wish to be laid to rest to outlining intentions longer term, such as how any underage children are to be raised and educated, or care arrangements for any pets.
- Super beneficiaries
One of the biggest myths about superannuation is that it is covered by your will.
Super is treated separately, meaning you must nominate your beneficiaries within your super fund. And update them as circumstances change.
This can be useful for blended families – leaving your super to children/grandchildren from a past relationship without encroaching on the assets of your current partner.
Without nominating beneficiaries, the funds could go somewhere else entirely – even to government coffers.
- Advanced Health Directive (a ‘living will’)
Estate planning doesn’t just cover your wishes once you’re gone. Yet people often focus solely on this aspect and overlook how they want to be looked after in the event of ill health or injury preventing them from being able to make decisions (e.g. stroke, terminal illness, severe accident).
An Advanced Health Directive can express your wishes and values on everything from life support and resuscitation to palliative care, medical treatments, and who you wish to be able to speak on your behalf.
- Insurances
Rarely do people have adequate insurance coverage for their needs.
There are insurances in super, which may cover death and permanent disability. Insurance of assets. Income protection insurance. And health insurance.
It’s important to right-size your insurance for your current needs and adapt that cover as your circumstances change. That means:
- Taking out new policies for new assets and investments.
- Updating policy inclusions and exclusions, such as relating to age.
- Cancelling insurances you no longer need (e.g. sold assets or professional indemnity once you retire).
- Tax implications
Because Australia has no inheritance tax, many people are lulled into a false sense of complicity over tax implications in estate planning matters.
However, beneficiaries can be liable for both Capital Gains Tax and income tax on inherited assets – potentially outweighing the value of those assets altogether.
Additionally, your own tax status should be considered. For instance, you may be paying more tax by holding an income-producing asset rather than transferring ownership to a loved one before you pass away.
- Tailored professional advice
DIY will kits, self-titled “expert” authors, and avoiding advisers to save money overlook the true value of tailored, professional advice given the complexity of estate planning.
You don’t know what you don’t know, meaning the margin for error is huge. And when it comes to money, tax and estate law, errors can be expensive indeed.
A good lawyer, accountant and financial adviser can more than pay for themselves by helping you avoid overpaying taxes, complex legal disputes, insufficient asset protections and lost wealth creation opportunities.
And given estate planning is ultimately about peace of mind, can you – or your family – really afford to overlook such valuable insight?
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Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.