Australia: Estate planning - common myths exposed

In brief - Regardless of your circumstances, you need an estate plan

Many people are unaware of the need to have an estate plan, keep it up to date and attend separately to items like superannuation which are not governed by a Will.

Misconceptions about estate planning are commonplace

Estate planning is important to all of us, irrespective of age or wealth. Our personal circumstances are all different and in some cases, this will call for some creative and innovative planning.

As a practitioner in the estate planning space, I regularly come across some common misconceptions my clients have about their estates and what will happen to their money, property and other assets after they pass away.

The aim of this article is to shed some light on those misconceptions and reveal the truth about some common estate planning myths.

Only elderly people need an estate plan - WRONG!

People of all walks of life, young and old, wealthy and not so wealthy, business savvy and those who aren't so much - everyone should think about and implement an estate plan.

Your estate plan need not be particularly complicated. What it does need to be is holistic. It must take into account your personal circumstances - your family arrangements, your business arrangements, your assets and liabilities, your superannuation and of course, your wishes for how your personal estate is to be administered following your death.

All that a Will does is distribute your assets after you die - WRONG!

In addition to leaving assets to your chosen beneficiaries, there are other goals that can be achieved by considering and crafting a personalised estate plan. Here are two simple examples:

Case study - guardianship clause vital when there are underage children

Joe is 30 years old. He has a wife and a young son, a home (with a mortgage) and a car which they own outright. Joe's circumstances are fairly straightforward, so he elects to prepare a simple Will which allows him to leave everything to his wife following his death.

In addition, Joe expressly includes a guardianship clause, specifying who he wants to be the guardian of his child (and any future children) in the event that something happens to both him and his wife. Joe's wife prepares a similar Will.

In this instance, Joe and his wife aren't particularly asset rich. For them, the most important function of their Wills is to appoint a guardian for their children, in the event something was to happen to both of them.

Case study - testamentary trust to provide for financial needs of at-risk beneficiaries

Chris is 55 years old and is a widower. He has one adult daughter, who unfortunately engages in risky behaviours. Chris's daughter has had problems with gambling in the past and Chris suspects that she is susceptible to substance abuse.

Chris wants to make sure that his estate is left to his daughter, but he worries that if she has access to the funds which form his estate, they will be dissipated quickly. He seeks advice about this and elects to set up a testamentary trust, with a close personal friend acting as trustee of the trust.

The trustee will be responsible for seeing to it that after Chris's death, his daughter's financial needs are met, but that the capital forming the estate is preserved for her benefit. If the trust is administered as Chris intends, his daughter will be financially secure for her entire future.

These case studies make it very clear that estate plans can achieve many other goals, other than simply disposing of your assets following your death.

All I need is a Will, it covers everything - WRONG!

Not all of your personal estate will be dealt with under your Will. There are particular items of your personal estate which sit outside your Will and which are not governed by the terms contained in your Will.

Just one example of the many things that fall outside the scope of a Will is superannuation. Everyone has it, but a large number of people aren't aware that they need to take steps (separate to the preparation of a Will) to ensure that their superannuation entitlement is given to who they wish following their death.

This common misconception is frightening when we consider that a fair portion of our individual wealth sits in our super funds.

Testamentary trusts are only for the super wealthy - WRONG!

Testamentary trusts are a fabulous vehicle to distribute your assets following your death and are not only suitable for the wealthy. Some benefits of a testamentary trusts include:

  • they are useful in blended family situations
  • certain tax benefits can be derived from testamentary trust distributions
  • they are useful when there are beneficiaries who display at risk behaviour or who have disabilities and require the assets or funds to be managed by a trustee (see the case study above)

My Will can be challenged after I pass away - RIGHT!

It is an unfortunate reality that the plan you put in place for your estate can be challenged after you pass away.

If you do not make adequate provision for your dependents, spouse or wife (and other beneficiaries of a particular class), then those beneficiaries can ask a court to make further provision for them from your estate.

The details of who, how and when these types of applications can be made vary slightly between each of the states, so you should seek specialist advice. However, what is consistent across all states, is that to avoid any challenge to your estate, you should be mindful of the needs of your immediate family and ensure that your estate plan adequately caters for those needs.

I only need to prepare an estate plan once in my life - WRONG!

People change, circumstances change and as a result, your estate plan will also change. It is important to revisit your estate plan every few years to ensure that it still fits your circumstances.

The things that can affect the operation of an estate plan are numerous. Here are a few examples:

Marriage - did you recently marry? In some jurisdictions, a marriage can cause an existing Will to become inoperative.

Sale of an asset - if a substantial asset is sold or its value compromised, this can have a knock-on effect in terms of your estate plan. It may cause distributions to beneficiaries to become unequal, which could ultimately lead to a challenge being made against your estate.

A new beneficiary - is there a new child or grandchild who should be included in your estate plan? If so, changes will need to be made.

Comprehensively reviewing your estate plan every few years is important. It will help capture those small changes and ensure that your wishes are carried out following your death.

John Bowman Jon Meadmore Greer Oliver
Trusts and estates
CBP Lawyers

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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