7 Common Estate Planning Failures (and a simple way you can avoid them)
What is estate planning?
Estate planning allows you put in place strategies to pass ownership of assets, control of entities and decision making powers in the event of your death or loss of capacity. At its most basic level, estate planning deals with wills and powers of attorney.
Estate planning is not the most pleasant of topics to consider – it requires us to face our mortality and deal with the inevitable. Unfortunately, the consequences of an improper estate plan can be catastrophic.
All too often estate planning is viewed as an afterthought – something that can be done simply and quickly by signing a simple will bought at the post office. In reality, the rise of blended and non-traditional families, the increasing reliance on superannuation and other trust structures, and the substantial increase in wealth among older Australians all mean that estate planning should be given its due consideration.
There are a number of mistakes that we see regularly. The unfortunate reality with estate planning is that mistakes only become apparent after someone has died or lost capacity, which means that their family or survivors are left to deal with the problems and often at great expense. Let’s look at some of the most common mistakes.
1. Not having an estate plan
The most obvious (and common) mistake is not to have an estate plan at all. It is estimated that around 40% of Australian adults do not have a current will. Even fewer have valid enduring powers of attorney. Dying intestate (without a valid will) can lead to consequences such as:
– further stress on grieving family;
– additional costs for your estate; and
– the transfer of assets to unintended recipients.
2. Failing to have the documents properly executed or witnessed
The rules relating to the execution and witnessing a will are very strict. If these formalities are not properly complied with, there is a risk that a document purporting to be a will may not be accepted by the Supreme Court, or that your estate will be put to the additional cost of proving the will. You must be careful about all aspects of preparing, executing and witnessing your will – giving consideration to such issues as:
– who is with you when the will was prepared;
– who are the people witnessing the will and what is their relationship to you;
– were there enough witnesses and were they all present during the execution and witnessing;
– how was the will is bound and stored.
3. Failing to adequately address a loss of capacity
In many people’s minds, estate planning can be dealt with through the use of a will. A will deals with the transfer of an estate after someone dies, but not with decision making while someone is alive but unable to make decisions for themselves. Whether it be through accident or illness, many people may lose the ability to make financial and/or personal and health decisions, either temporarily or permanently. The unfortunate legal reality is that the complexities that arise following a loss of capacity can dwarf those that follow death.
The use of effectively drafted enduring powers of attorney can ensure that the appropriate people can make the best decisions for you, and in accordance with your wishes.
4. Failing to deal appropriately with superannuation
Since the introduction of compulsory superannuation an increasingly large proportion of our wealth is contained within superannuation funds. Many people do not realise that superannuation benefits do not automatically form part of their estate once they have died. There are a number of different ways that superannuation benefits can be transferred following death, and the ‘best way’ will differ according to the circumstances and intention of the individual. As well as the transfer issue, there are complex rules regarding the taxation of superannuation benefits following transfer after death.
5. Failing to keep an estate plan up to date
Our family and financial circumstances are always changing. What may have once been an appropriate estate plan may no longer be the case. Changes such as divorce, the birth of children and growth in personal wealth can all affect the adequacy of an estate plan, and in the case of marriage, will generally automatically revoke a will. Estate plans should be regularly reviewed and revisited as personal circumstances change. A review need not necessarily lead to incurring substantial additional costs, but will allow you to ensure that you have the most effective estate plan for your current circumstances.
6. Failing to make adequate provision
The most common type of challenge to a will is a family provision application. This application allows the spouse, child or dependant of a deceased person to seek orders from an estate if adequate provision is not made for their proper maintenance and support. There are a number of estate planning strategies that can be used to deal with potential applications, if you are concerned about a disgruntled spouse, child or dependant.
7. Failing to consider the taxation implications
Unfortunately, Benjamin Franklin was right about the certainty of death and taxes. Even more unfortunate is that one (death) generally gives rise to the other (taxes). A poor estate plan will not give consideration to the taxation consequences of estate plan (whether that be capital gains tax, income tax or superannuation death benefits tax) or the tax planning opportunities that can arise (through the use of structures such as testamentary trust.
How can you avoid these mistakes?
The best way to avoid the pitfalls associated with estate planning is to ensure that you seek properly qualified and experienced advice. A will should not be an afterthought offered following a conveyance, nor is it generally advisable to use a ‘do it yourself’ kit from a post office or downloaded off the internet.
The Ballantyne Law Group has a strong focus on estate planning, and works with our clients and their other professional advisors to ensure that appropriate estate plans are put in place.
Contact us on (07) 5606 7332 to discuss this matter with one of our team today.
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