Estate Planning & Aged Care

Estate Planning

Estate planning is about wealth succession- a way to help protect the wealth you have built over your lifetime, so that it is distributed according to your wishes following your death.

Estate planning is about giving you control to ensure that;

  • The people you care about are looked after once you have gone, and
  • Your assets are passed to the people you want to receive them.

Estate planning is beneficial for everyone. The more complicated your personal and financial affairs, the more important it is to have an estate plan.

  • Planning for the future becomes important at certain times in your life, such as
  • Getting married, living with a partner, separating or getting divorced
  • Having children, including step-children
  • Moving house, interstate or overseas,
  • Buying real estate or other valuable assets
  • Family separation, involving other family members
  • Buying, selling or operating a business
  • Setting up a family trust or company, or if you have family members with special needs or children who are vulnerable.

What is involved in estate planning?

There are three main tools that can help you with your succession planning.

  1. A Will
  2. Power of Attorney
  3. Superannuation nominations

Making a Will

A Will is a legal document that outlines how you want your assets and possessions distributed upon your death. It can cover a range of special requests including providing for children, guardianship or your charitable objectives.

One of the most important consideration in making a Will is when you have children, in particular young children that are dependent on you. Your Will should detail who you want to take care of your children in the event of your death, as well as how you want them to be cared for. Your Will should include instructions for the appointment of a guardian who can legally act on behalf of your children, as well as specific instructions for their upbringing. This can help prevent issues down the track, especially in the case of blended families and where both parents pass away at the same time.

What happens if you die without making a Will?

Dying without a Will is called ‘dying intestate”. When this happens, the court will appoint an administrator and your assets will be distributed according to a strict formula. This formula may not be in line with your intentions, and the outcome may not be in the best interest of your family and loved ones.

What should you consider when preparing a Will?

  • Who do you want to be your beneficiaries?
  • Who will you chose as the executor of your Will?
  • Do you have any specific bequests?
  • What assets need to be included?
  • What are the tax implications?
  • Who should take care of children, how they should be cared for and the manner of their up-bringing?

When should you update your Will?

Your Will should be reviewed and updated whenever there are major changes in your life, such as:

  • Marriage, separation or divorce
  • Birth of children
  • Death of a family member
  • Significant changes to the value of your assets
  • Significant changes to the way you own your assets, such as the formation of a family trust or self-managed superannuation fund
  • Entering a new business or change to existing business structures, or
  • Retirement

What is not distributed through your Will.

Assets owned in joint names pass directly to the surviving owner.

Superannuation benefits are generally governed by the superannuation fund trustee. However, a binding nomination can be made to certain beneficiaries including your estate.

The payout from life insurance policy where you have nominated a beneficiary to benefit directly from the policy.

Testamentary Trusts

A Testamentary trust is established in a Will and results in the trustee looking after the assets on behalf of the beneficiaries. It is effective estate planning tool because it allows the trustees to distribute income from the estate to the beneficiaries in a tax effective manner.

Children under 18 who receive income from a testamentary trust are subject to adult tax rates, rather than minor penalty rates.

A Testamentary trust can also protect assets from spendthrift or bankrupt beneficiaries who may be prone to misuse assets they inherit.

Powers of Attorney

A Power of Attorney is a legal document allowing you to appoint someone to act on your behalf.

Rules relating to Power of Attorney vary from state to state. There are different types of Power of Attorney, each with different purposes.

General Power of Attorney allows someone to act on your behalf with regard to your personal and financial affairs. You can set limitations around the powers if you wish, defining specfic timeframes or asset boundaries. For example, you can nominate someone to operate a specified bank account or sell a specific assets while you are overseas. All General Powers of Attorney become void if you lose mental capacity to make decisions.

Enduring Power of Attorney is similar to a General Power of Attorney, but it is not automatically revoked if you become mentally incapable. An Enduring Power of Attorney can make important financial decisions in the event of absence, illness or incapacity.

Enduring Guardian Advance Health Directive allows you to nominate someone to make health care decisions on your behalf. It is not revoked if you lose your mental capacity. Some of the decisions that a Guardian can make include:

  • What future health treatment you have, including the medical practitioner who should treat you
  • Whether to donate organs
  • Where you should live
  • Whether to participate in experimental health care, and
  • Whether to have life-sustaining treatment withheld or withdrawn.

Superannuation Nominations

Your superannuation savings do not typically form part of your assets that are distributed via your Will. This is crucial consideration for the succession of your wealth, because if structured correctly your super savings can be received tax free when they are passed onto your beneficiaries.

Correspondingly, if your preference for your super savings are not structured correctly, the consequences for your savings can be damaging. Superannuation savings paid to someone other than your spouse, your minor child, or someone who is financially dependent on you, can be taxed up to 31.5%.

Superannuation legislation governs who can receive a death benefit directly from a superannuation fund. It also governs in the form in which a death benefit can be paid (ie lump sum and / or income stream).

It is important requirement to make a valid death benefit nomination your superannuation. A starting point on any discussion on superannuation death benefits is to understand who is a dependent under superannuation law (i.e. super/SIS dependent).

In the event of death, a super fund member’s benefit may only be paid directly to a beneficiary who is a SIS dependent (see below) and / or their Legal Personal Representative (LPR ie the Executor of their estate)

A Superannuation dependent (SIS Dependent) includes:

  • The deceased’s spouse (including same or opposite sex de facto) but not a former spouse
  • The deceased’s child of any age
  • Any other person who was financially dependent on the deceased just before he or she died, and
  • Any other person with whom the deceased was in an interdependency relationship just before he or she died.

An interdependency relationship broadly requires that two people:

    • Have a close personal relationship
    • Live together, and
    • One or each provide the other with financial and domestic support and personal care.

Death Benefit Nominations

The following nomination options may be available to superannuation fund members:

  • No nomination – if a member does not make a nomination on who should receive their super death benefit, the benefit will be paid in accordance with their superannuation fund’s rules.
  • Non-binding nomination – a member can nominate a beneficiary(ies) and /or their LPR and while this is taken into account the ultimate discretion on who should be paid a death benefit rest with the trustee of the superannuation fund.
  • Binding Nomination – a valid binding nomination (BDBN) provides the highest level of certainty. It is legally binding on the trustee to pay the death benefit to the person or persons / or LPR and in the proportions nominated. To be valid the nominated beneficiaries must be SIS dependents and / or the LPR. To be effective the binding nomination must be made in a specific format and if not a non–lapsing binding nomination must be renewed every three years.
  • Reversionary pension – available on income streams only. A reversionary pension is a pre-existing income stream / pension payable to a dependent (reversionary beneficiary) on the death of the primary pension fund member. Typically reversionary pensions are paid to the surviving spouse. The rules of the super fund need to permit that a reversionary pension can be paid.

Aged Care

Ageing Family Members – The Times They Are A Changing

The reality is we are living longer and in most cases fuller lives. If you have elderly relatives there is a lot to consider when deciding on the best ways to provide support as they age. Can they remain at home with some assistance? Is there enough money to cover daily living expenses? Is there a need for aged care accommodation? While it is preferable that older parents or relatives are involved in these decisions, it is not always possible. Either way, a financial adviser with specific aged care expertise can offer valuable assistance and help to maintain a professional focus when families are dealing with significant emotional responses.

A financial adviser can help you work through the many options with your family and create a plan that prepares you all for this important transition in life of ageing relatives.

An adviser can help you with issues and decision and formulate a plan around:

  • What needs to be done to access care and what options do they have?
  • Strategies to maximise the use of your relative’s assets
  • Budgeting and cash flow management – can they afford to pay for care?
  • Aged care accommodation and residential care funding options
  • Department of Human Services entitlements to ensure they are not missing out on anything
  • Estate planning issues
  • Liaising with residential facility providers, legal and accounting professionals