It’s a depressing realisation, isn’t it?
Yet, while there is nothing we can do about eventually dying one day, there is much we can do to prepare for it.
And by that, we don’t mean funeral planning and picking out your favourite songs to play at your service.
We mean getting your financial affairs in order so that your wealth is passed on to the people that mean the most to you.
The thing is, far too many Australians die without a will or without any estate planning whatsoever.
That can mean unnecessary stress for your loved ones after you pass on as well as a chance that your wishes are not being understood or followed.
So in this article, we’ll provide details about a variety of estate planning tools to help your legacy live on long after you have departed.
Where there’s a will
One of the best places to start when considering estate planning is to talk to a qualified professional such as a lawyer or accountant.
Your accountant, for example, can outline elements such as a testamentary trust in a will, which can provide beneficial tax treatment and asset protection for your beneficiaries.
When it comes to wills, firstly it’s vitally important that you have one! Far too many people – including musician Prince – die without one so their final wishes are not known.
Ideally, you should review your will at each important stage of your life, such as the birth of a child, change in relationship status or the death of a beneficiary.
By keeping your will up-to-date, you will ensure that your loved ones are not left trying to decipher a document that has little relevance to your life today.
What about superannuation?
Many Australians have significant superannuation balances.
But if they die before they get to enjoy those funds, what happens to the balance?
Selecting superannuation beneficiaries needs to be carefully thought through as, generally speaking, there can be tax implications if the funds are not left to your spouse, minor children or a dependent for tax purposes.
That’s because superannuation legislation states that only dependents of a member can receive their super benefits so that usually precludes a parent or sibling.
However, a super fund member can make a binding nomination, which directs where the benefits should be paid. A non-binding nomination guides the trustee on whom to pay, however, no nomination gives the trustee full discretion over who to pay your superannuation benefits to.
Another consideration needs to be whether the funds should be paid as a lump sum or as a superannuation pension.
If it’s a lump sum to minor children, for example, the funds would tax-free.
What about the new superannuation caps?
New superannuation legislation from 1 July 2017 introduced caps of $1.6 million to individual member balances.
If one member of a self-managed super fund, for example, died and they had previously had $1.1 million each, then the new balance would be above the new threshold.
If not action is taken, under the new legislation, then the beneficiary will be penalised, which no one wants to happen.
While you should seek professional advice on this matter, it needs to be carefully considered whether the other member is classed as a reversionary beneficiary listing or whether the funds should be transferred as a partial lump sum.
Keeping with the superannuation theme, it also needs to be recognised that not all self-managed super funds (SMSFs) have trust deeds that allow for binding nominations.
Therefore, if you have an SMSF, you should review your trust deed to ensure that there are suitable provisions to allow the trustee to become involved and to be governed by a binding nomination.
What happens to your life insurance?
It’s equally important to understand that life insurance policies are not automatically included as part of your assets to be distributed by your will when a beneficiary has been listed.
While you should always carefully consider who you would like to be the beneficiary, it is sometimes better to list your estate as the beneficiary of any life insurance policies so the proceeds can be placed in a testamentary trust.
Some insurance policies can be worth millions of dollars, which can create tax implications for the beneficiary.
It’s best to access professional advice on this matter, including whether it’s better to have your life insurance policy within super or outside of it.
Conclusion
No one wants to think about dying but by ignoring the grim reality of life and death, you are potentially doing yourself and your beneficiaries a major financial disservice.
It’s no secret that effective estate planning can be complex, which is where professional advice comes into its own.
For example, it can sometimes be beneficial to pay your superannuation and insurance to your estate instead of directly to beneficiaries.
The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.
This approach was vindicated when we were named Victoria’s favourite mortgage broker at the Investors Choice Awards.
So, if you’re considering developing a comprehensive plan to protect your estate before and after you die, why not contact Intuitive Finance today to ensure you have the right information and expert support on your side from the very beginning.
The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.
with clients all over Australia and around the world. Andrew has over 30 year’s experience in the finance industry and has assisted clients to secure over $2 Billion in mortgage lending over his time. Intuitive Finance deals with all aspects of lending from helping first homebuyers, someone wanting to upgrade their home or starting out and experienced investors looking to secure that next investment property, we can assist with all those requirements. We also specialise in working with self-employed clients and getting them the best outcomes, along with Commercial and Asset finance solutions. Intuitive Finance is highly regarded in the industry and has been recognised as a national winner of the MFAA customer service award and also one of the finance industry’s top mortgage employers. Our brokers also feature regularly in the Top 100 mortgage brokers list in Australia.
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