Most of us don’t like to spend too much time thinking about when we might pass away
If your health is in good shape, you may feel like there may be no urgency. However, getting your financial affairs in order with time on your side can make good sense.
Q. When should someone start thinking about getting their financial affairs in order, and why is it so important?
People often come to us after they have had a first- or second-hand experience. For example, someone they know may have passed away without a Will, been involved in a legal battle or family dispute, or they themselves may have been through a divorce. But you really should be thinking about your financial affairs prior to this, for example, once you get into a relationship and hold financial interests with someone else, especially when a child (a dependant) is involved.
Putting valid and appropriate legal arrangements in place (and regularly reviewing them) can help ensure that your intentions and wishes will be carried out precisely and in a way that supports the financial well-being, stability, and growth of those you care about. For some, it’s about being able to support a purpose or mission that has been important during their lifetime. Without the proper arrangements, your loved ones may end up experiencing unnecessary uncertainty, suffering, or family disputes. These are not the kind of memories most of us want to leave behind.
Q. When thinking about passing on assets to family, people often think about creating a Will. Is a Will enough, and are there any other legal documents people should be thinking about?
A person’s financial interests can be wide-ranging and can include a house, shares, investments, a family trust, company interests or ownership/directorship, international assets, super and life insurance benefits. While a valid Will ensures that assets which are in your name, can be legally transferred to your intended beneficiaries, depending on your circumstances, you may wish to consider additional documents, including:
- Enduring Power of Attorney and Enduring Guardianship documents, to appoint someone you trust to make financial, personal, lifestyle and medical decisions on your behalf when you no longer have the capacity to make these decisions yourself
- appointing a guardian for any dependents, should you and the other parent pass away
- an Advance Care Directive to outline your wishes for your end-of-life care
- binding nominations for your super and pension accounts (including self-managed super fund accounts)
- death benefit nominations for life insurance benefits
- letters of wishes, details and directions regarding personal items, or statutory declarations and statements to protect your estate from family members who are likely to make a claim
- Deed of amendments in relation to family trusts, nominations and directions for successor appointors and/or successor trustees
- non-binding directions in relation to the intended distribution of discretionary trusts or succession planning within a family business
- key person insurance and buy-sell agreements in relation to any company interests you hold
- the creation of legal rights by way of a deed of family arrangements, loan agreements, or contractual arrangements between yourself and entities or other parties (i.e. shareholders agreements, partnership agreements or tenancy and lease agreements).
Q. What are the common pitfalls in the estate planning process?
There is often confusion around what does and doesn’t form part of a person’s estate, and also what legal rights they have in relation to each of their assets or financial interests.
Tax is definitely a common pitfall. The tax implications of transferring an asset to someone else can be significant if not properly understood, meaning your intended beneficiaries could end up with a tax bill they didn’t expect. Other common oversights include not considering foreign beneficiary tax or the cost of maintaining and preserving an asset in a testamentary trust.
Navigating these issues takes careful planning and bringing together a qualified team of professionals (such as taxation, financial and legal practitioners) may be pertinent here.
Q. What are some top tips for someone starting to think about getting their financial affairs in order?
- Take some time to reflect: Asking the often big and confronting questions can really help you find a compelling purpose to start an estate planning journey, such as: “Who will look after my children if I’m not here?” or “Who do I trust to manage my affairs when I pass away?” or “How can I ensure my children can continue living in our family home and are provided for financially after I pass away?”.
- Have open and honest conversations: For newly-married couples, new relationships or blended families, the estate planning journey can spur some difficult conversations. However, as hard as it can be, these conversations can often bring people together, and create a more united personal and financial relationship.For couples who have been together for decades, conversations like these can provide an opportunity to express whether they wish to be buried or cremated, their intentions around medical lifestyle arrangements and their end-of-life care, and who they wish to appoint as an Enduring Guardian.
- Get the facts: With the help of your financial adviser, accountant, or lawyer, make sure you understand which assets form part of your estate, and all the people who may be entitled to make a claim on your estate. Get clear on who you would like to provide for with your estate. This might seem like a straightforward exercise, but things can get complicated with blended families, estranged relationships, or former partners.
At the end of the day, a plan, whether simple or complex, is better than no plan. Even if your estate is simply a bank account that holds cash, you still need to consider how you wish to divide and allocate that cash to your intended beneficiaries. And, as the famous saying goes, there is no time like the present.
As always, your best course of action depends on your own circumstances and financial plan. Contact Carrick Aland’s award-winning Wealth Planning team on 1300 466 998 or visit carrickaland.com.au/wealth-planning/.
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Article compiled in consultation with Bhavesh Mistry of MistryFallahi Lawyers & Business Advisors.
