People make these avoidable estate planning mistakes all the time and it costs their loved ones dearly.
It’s a sad but unavoidable fact: one day we are all going to die.
You will most likely have clear ideas as to how you would like your hard-earned wealth – your ‘estate’ – to be divided amongst your loved ones or other beneficiaries.
However, estate planning is a complex area of law and basic mistakes can see wills declared invalid, money end up with unintended recipients, or benefits reduced by avoidable tax bills.
So how can you avoid making some of these estate planning mistakes?
1. They don’t have a will
Only around half of Australian adults have a valid will. If you don’t have one, make one as soon as possible. Otherwise your estate will be distributed according to a government formula. If no beneficiaries can be identified your life’s savings will end up in state government coffers.
If you do have a will, make sure you review it regularly and update as required. Just a few of the key events for revising your will include entering or leaving a marriage or de facto relationship, starting a family, establishing investment vehicles such as companies or trusts, changes to the financial or health status of adult beneficiaries or to add gifts to charities.
2. They don’t appoint an appropriate executer
Administering an estate can be a major undertaking. Ideally you will want an executor who is competent, organised, honest and unbiased.
Often this will be a spouse who is also the sole beneficiary. The administration of your estate will therefore be relatively straightforward. But it’s common to also nominate an alternative executor should your spouse die before you. This may be an adult child or other close relative, and not necessarily a beneficiary.
Whoever you nominate, make sure you tell them that they are a (potential) executor. You’ll need to provide them with important information, such as the location of the original will, and contact details for your lawyer, accountant and financial planner.
3. They forget that some assets aren’t dealt with by their will
Any assets that you jointly own automatically pass to the surviving owner(s) on your death. They are not subject to your will.
If you have provided your super fund with a binding death benefit nomination, your death benefit will be paid to the nominated beneficiary. This can be anyone, and not necessarily a beneficiary of your will. If you nominate your ‘personal legal representative’ (i.e. your executor), the death benefit will be paid to the estate and dealt with according to your will. If you don’t make a binding nomination, the trustees of your super fund are obliged to pay the benefit to your dependents, as defined by superannuation law.
This may not coincide with your wishes.
4. They’re not fair
If someone has reasonable grounds to believe they should receive something from your estate but you haven’t provided for them, they may be able to legally challenge your will. Legal fees for this may be paid by the estate, eroding its value. So you’ll want to minimise the chances of the will being contested.
Also be wary of ‘ruling from the grave’. This is one of the more common estate planning mistakes. For example, by making any gifts dependent on a beneficiary either doing something (marrying a specific person, say), or not doing something.
5. They don’t get expert advice
Estate planning throws up many other traps for the unwary. These range from paying too much tax on a superannuation death benefit, to not making provision for beneficiaries who are unable to adequately manage their own affairs. With so much at stake, it pays to consult a specialist estate planning lawyer.
This is an edited version of an article that originally appeared on AFA Group Wealth and is republished here with permission. This article contains general information only. This should not be relied on as independent finance or tax advice. If you are after specific professional advice, speak to your registered tax agent/financial adviser or reach out to AFA Group Wealth.