Protecting
your family from an inheritance nightmare
By
AMP Financial Planner [Robert Inukihaangana]*
Estate
planning is a topic that many people would rather not talk about too often, but
it’s an important part of the entire financial planning process for anyone with
responsibilities, whether they are family or business responsibilities.
With one in
three Australian marriages ending in divorce and people living longer, the
number of blended families in Australia is increasing and family life is
becoming increasingly complex. The need for comprehensive estate planning has
never been more apparent.
For many
people these days, it means considering all possible scenarios and implications
when mapping out how they wish to have their estate – that is, all of your
assets and money – managed after they die.
It isn’t easy making
difficult decisions about loved ones, and it’s even tougher for those in de facto
relationships and second or subsequent marriages, where there are children from
previous relationships. The difficulty
in choosing beneficiaries and amounts to be bequeathed means that many couples choose
not to make a decision at all.
While
estate planning laws vary in every state, wills are typically rendered invalid
by marriage and may become partially invalid by divorce. So, it’s particularly
important for everyone to make a new will after marrying or divorcing.
Following are just some of the estate planning issues
you should consider, in consultation with your solicitor and financial planner:
Keep your will
up to date - If you already have a will, you should update it when
your financial or relationship circumstances change. While remarriage may
revoke an existing will, divorce may not.
Provide for
dependants in your will - If dependants do not have specified entitlements
set out in a will, they may have to make a claim for entitlement through the
courts, at expense of the estate.
Nominate guardians for your children – If you have children
under the age of 18, appointing a guardian for them in your will may help avoid
disputes between family members by making your intentions clear. However, it is not
binding as the Family Court can override your choice of guardian and appoint a
different guardian where it considers this to be in the child’s best interests.
Careful
planning to minimise tax - The executor of a will may decide to sell the estate
assets rather than pass them directly onto the beneficiaries. In this case,
capital gains tax may be incurred, reducing the money the beneficiaries receive.
Bequeathing
assets not owned - People need to understand what they can and can’t
bequeath. Assets owned by joint tenants,
trusts or companies can’t be included in a will.
Don’t assume
superannuation will bypass the estate - Large super
funds may automatically pay superannuation benefits to a deceased person’s
estate. Having the funds included as part of the estate increases the risk of
money falling into the wrong hands if the estate is challenged. To ensure
superannuation benefits are paid directly to a beneficiary and not included as
part of their estate, a person needs to provide a valid binding death benefit nomination
directly to their super fund.
Managing family
trusts - Family
trusts need trustees to manage them. If,
for example, a person stipulates in their will that when they die their sister
is to be the person who appoints the trustee, what happens if the sister dies a
short time later?
Testamentary
Trust – To provide additional protection of your assets, a
Testamentary Trust might be an option. Put simply, this is a
trust established by a will.
Rather
than assets being distributed upon death, some or all of the assets would
remain in this trust for the benefit of a specific group of beneficiaries named
in the will. There may also be tax advantages in having a testamentary trust due
to the flexibility available to ensure that more income is distributed to
‘dependent’ children.
Let’s say a father leaves a sum of money to his
son or daughter, who later separates from their spouse, the Family Court in a
divorce settlement may rule that the spouse is entitled to a proportion of the
inheritance. However, this risk could be reduced if the assets had been left to
the children in a trust.
Be clear and
concise - Ambiguity in a will can lead to unnecessary disputes
over meaning, and the
wishes of the deceased person may not be carried out as intended.
While
the saying ‘you can’t rule from the grave’ carries some truth, planning for
what will happen after you die will ensure your hard earned assets
are protected and your wishes carried out.
Estate
planning is just as important as planning financially for other
stages in your life, such as marriage, starting a family or retirement. After
all, why
work to create wealth only to see it dissipated by not planning for its
distribution after your death?
While
only a qualified practitioner can legally draw up a will, a financial planner
can help you navigate your way through the complexities of estate planning and
provide a framework for ensuring all considerations
are covered when mapping out your final wishes.
*[ Robert
Inukihaangana]
is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051
208 327, AFS Licence No. 232706.
Any
advice given is general only and has not taken into account your objectives,
financial situation or needs. Because of
this, before acting on any advice, you should consult a financial planner to
consider how appropriate the advice is to your objectives, financial situation
and needs. No payments are received by AMPFP or a financial planner accredited
by it for the general advice in this article. If you decide to purchase or vary
an AMP product, your financial planner, AMPFP and companies within the AMP
group will receive fees and other benefits from the product, which will be a
percentage of either the premium you pay or the value of your insurance. You
can ask your financial planner for more details or contact AMPFP, 33 Alfred Street , Sydney
NSW 2000.
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