Why every Australian needs an estate plan – and how to get started

Many fall victim to the misconception that a will is sufficient to protect the transfer of assets to their intended beneficiaries, but this is not the case. Others believe that an estate plan is only applicable for high net worth individuals and therefore isn’t something they need to consider—which couldn’t be further from the truth.

The reality is that an estate plan should be part of every Australian’s financial plan. In the grand scheme of things, it’s a small investment you can make now to secure the future of your family’s financial wellbeing—something many of us consider priceless.

So, what exactly is an estate plan?

Demystifying estate planning and why a will is not enough

Estate planning is a multifaceted process which ensures an individual’s entire wealth is transferred to the next generation in the best possible way. It also involves ensuring measures are in place for the effective management of assets if an individual suffers a period of physical or mental incapacity before they die.

While a will is important, estate planning goes much further because it involves a more holistic approach to the transfer of a person’s assets and wealth. It also takes into consideration the unique circumstances of each family and each beneficiary. So, while a will is part of an estate plan, it is only part of the picture. Here’s why.

Some assets are not covered by a will. For example, assets held in a family trust or a company do not pass under a will—other mechanisms or documents are required for this. The only way to “pass” assets in a family trust to a particular person, is to pass control of the trust to that person. Similarly, assets in a proprietary company do not pass under a will: only shares in the company pass under a person’s will.

Another common misconception is that superannuation is covered by a will, but this is not always the case. A person’s superannuation is held by the trustee of the super fund on trust for the member. This means the member needs to complete other documents (such as a binding death benefit nomination) to ensure the super will pass to the right beneficiaries. It is also possible to direct superannuation to a person’s estate so that it can be administered according to the person’s will, but this is not automatic.

Beneficiary nominations for super funds raise complex questions which must be evaluated carefully during the estate planning process, which is why it’s important to seek advice from an expert who can help you navigate these intricacies.

Finally, because a will only comes into effect when you die, it is important to consider how your financial affairs would be managed if you became unwell or mentally incapacitated. Therefore, powers of attorney have an important role in your overall estate plan.

With all this in mind, it’s clear why proper estate planning is critical in ensuring your wealth is transferred in the best possible way. Now let’s look at how you can get started.

How to identify your individual needs

First of all, it is important to realise that estate planning is not a “one-size-fits-all” product.  It involves careful assessment of the unique circumstances of each family and each intended beneficiary. It is important to identify the risks a particular beneficiary may have with regards to an inheritance and put in place structures and mechanisms by which those risks are minimised. For example, it might be appropriate to provide certain beneficiaries with a kind of testamentary trust which protects the assets in the trust from third parties or even from themselves.

The other important reason to consider creating a will with testamentary trusts is to provide the beneficiaries with tax-effective ways of managing their inheritance for the rest of their lives. 

If a person has assets in various entities such as companies, trusts and SMSFs as well as businesses, it is important to review the trust deeds and company constitutions to ensure seamless succession planning.

Estate planning also means ensuring appropriate documents are in place to cover any period where a person is unable to manage their financial affairs. Sometimes this can be simply done by an appropriate enduring power of attorney, but when other entities are involved such as companies, trusts, SMSFs and businesses, other documents are frequently needed.

Estate planning can be complicated, but it’s an important part of one’s overall financial plan and shouldn’t be left to the last minute. With proper planning, Australians can enjoy peace of mind knowing their family and loved ones are taken care of.

Roslyn Pavey, Special Counsel, Hicksons Lawyers