The Basics of Estate Planning

Date: Apr 01, 2011
Document Type: Newsletter

Estate planning is important.  One of the essential purposes of estate planning is to ensure that your beneficiaries receive the maximum possible benefit from your estate.  This involves determining the most financially efficient and tax effective way to distribute your estate on death.

An estate plan should ensure that your estate assets pass to the people and organisations in the amounts you intend.  It should also minimise the impact of taxes wherever possible.  Estate planning should also take into account the circumstances of the intended beneficiary.  For example, special considerations may arise if the intended beneficiary is experiencing family breakdown or bankruptcy issues.

Estate planning is worth considering if you have a reasonable level of assets and superannuation.  Estate planning may be particularly useful if you:

  • have a superannuation payout;
  • have capital losses;
  • have property which may be caught by capital gains tax;
  • have life insurance;
  • have family debts;
  • want to pass on a family business;
  • want to make a charitable gift; or
  • want flexibility in distributing your assets.

When most people think of estate planning, they think of leaving assets directly to another person in their will.  This is only one method of estate planning and not all of your assets are necessarily governed by your will.  For example, if you own property with another person as “joint tenants”, this property automatically passes to the other person immediately on your death and it does not form part of your estate.

In addition, your superannuation funds are not an asset that is covered by your will, whether it is in a self managed super fund or an industry fund.  Legislation sets out who can be an eligible beneficiary of your superannuation and it is important to understand the rules applicable to superannuation.  It is possible to direct that your superannuation be paid to your estate, in which case your will will govern the distribution of that asset.

Important estate planning tools include trusts and life insurance 

Solicitors commonly prepare family trusts which allow a person to transfer assets out of their name while still keeping control of the assets.  Family trusts can be created in a will, in which case they are called a testamentary trust.  Family trusts can be used to ensure that your assets pass to your children in the event your spouse remarries after your death.  They can also be a useful way to provide a benefit to a beneficiary who becomes bankrupt or divorced, or to a beneficiary suffering a disability.  Trusts often have capital gains tax and income tax benefits.

Life insurance can also be a helpful estate planning tool.  It can be a useful way to ensure that you have adequately provided for a family member.  In addition, it may be used to pay debts, buy out a business interest or pay for a capital gains liability.

Estate planning involves many complex considerations.  However, the plan itself should not be complex to administer.  Because estate planning is driven by your financial circumstances and the specific needs of your family, it is important to obtain advice applicable to your situation.  An estate planning specialist can assist you in organising your affairs, or can review your existing arrangements and ensure that they remain up to date.

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