Estate planning: a checklist

Making sure the future is financially secure for you and the people close to you goes beyond planning for retirement. None of us like to think about what will happen when we pass away, but you can help make sure that your wishes are carried out by planning ahead.

Your estate is made up of what you own and could include your home, investments, savings and cheque accounts, life insurance, super, car and furniture. Basically, any assets you want to pass on to people, charities or other organisations could potentially be included as part of your estate.

Here are five steps to help make sure you’ve got everything covered in your estate plan.

1. Make a will and keep it up to date

If you don’t have a will – and according to the NSW Government Trustee and Guardian website, nearly half of all Australians don’t have a current will – your assets will be distributed according to the intestacy laws of your state. This means that they may not go to who you want them to.

For instance, if you have a blended family, an up-to-date will can give you the assurance that your children and stepchildren will be provided for as you intend.

Your solicitor, a private trustee or the Public Trustee for your state or territory can help you choose an executor and draft a legal will that sets out:

  • Who will receive your assets after you die – e.g. property, possessions, bank account balances, shares and managed funds
  • Who will look after your children
  • Your wishes regarding your funeral and burial.

While it’s possible for a legal will to be contested, setting out your wishes clearly and with the help of a legal professional can make contesting difficult.

Keep in mind that a will won’t cover assets that you own with someone else as a joint tenant. The surviving tenant will automatically get ownership of your share.

You can amend your will if your circumstances change, such as when you marry, divorce or welcome the arrival of children or grandchildren. Small changes can be made using a legal document called a codicil. If you want to make substantial changes, it’s a good idea to create a new will.

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2. Set up a Binding Death Benefit nomination or Non-lapsing Death Benefit nomination for your superannuation

Superannuation is not automatically paid to your estate in the event of your death – where it is paid will depend on your fund’s rules and any death benefit nominations you’ve made.

A Binding Death Benefit nomination or Non-lapsing Death Benefit nomination is a written nomination made to your super fund to make sure that your death benefit – which includes the total super balance and any life insurance held in the fund – is paid out according to your wishes.

Without this type of nomination, your super fund may be able to use its discretion to choose which of your eligible beneficiaries receive your death benefit, or a default procedure may apply (e.g. it may automatically be paid to your estate).

In most cases a Binding Death Benefit nomination only remains valid for three years, so it’s important to regularly revise it. A Non-lapsing Death Benefit nomination will (depending on your fund’s rules) generally remain in place unless you cancel it or replace it with a new nomination.

3. Nominate a beneficiary for your life insurance outside super

Life insurance policies outside super generally let you nominate who should receive the benefit if the life insured passes away. There could be multiple parties involved - typically the life insured, the policy owner, the person paying the policy premiums and the beneficiary. It’s common for these parties to be one individual, but not essential.

If you are the policy owner and don’t nominate a beneficiary, the benefit will be paid to your estate. If the benefit amount is $50,000 or more there is a legal requirement to provide Probate or LOA before the benefit can be paid. These are legal documents proving that the executor is authorised to manage your affairs.

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4. Understand the tax consequences of how your assets are distributed

Your beneficiaries may end up with a hefty tax bill if you don’t plan how they will receive your assets. This is because the way you distribute your assets could have tax implications, including Capital Gains Tax (CGT).

Fortunately, there are ways you may be able to minimise tax impacts. For instance:

  • Insurance policy proceeds from a super fund are tax-free if they’re paid to dependants

  • A CGT liability can be deferred if a beneficiary of your estate is given an asset rather than the proceeds from the sale of that asset

  • Incorporating discretionary and testamentary trusts into your will can help minimise tax. This is something an estate planning lawyer can help you with and you can find out more about testamentary trusts at ASIC’s MoneySmart website.

5. Appoint an enduring Power of Attorney (PoA)

There are a few different types of PoAs, including specific, limited and general, that allow a person you nominate to carry out particular tasks on your behalf. However, an enduring PoA will let that person legally act on your behalf up until you pass away, even if you become incapable of managing your own affairs.

You can also choose to appoint an enduring Power of Guardianship that allows a person to make decisions about your health care, lifestyle and where you live.

It’s important to choose someone you trust and seek independent legal advice to make sure you understand the risks involved in giving someone else control over your affairs.

A financial planner can work with you and your legal adviser to get the best possible estate plan in place for you and your family. 

Things to know before you Can:

This document contains general advice only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial planner before making a financial decision.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

While care has been taken in the preparation of this document, no liability is accepted by Commonwealth Financial Planning, ABN 65 003 900 169, AFSL 231139, its related entities, agents and employees for any loss arising from reliance on this document.