We all like to think we’ll leave a lasting legacy – but good planning is key. If you’re not sure what would happen to your assets if you passed away, it might be time to formalise your estate plan.
Your personal assets (‘estate’) will one day be divided among the people you love and the causes you believe in. But do you know exactly how that division is going to happen? Or whether you could be distributing your assets more tax-effectively?
While your family may have a good understanding of your intentions, the only way to avoid uncertainty and make the most of your legacy is to put together a formal estate plan.
Why do you need a valid Will?
A valid Will specifies how you would like your estate distributed following your death. Combined with the rest of your estate plan, it can be used to make provisions for children and grandchildren – as well as yourself while you are alive – through various powers of attorney and guardianship.
If you pass away without a professionally-drafted, up-to-date Will, it opens the door to the confusing and often expensive world of intestacy. This could see some of your estate eroded by legal fees at the expense of your beneficiaries.
Despite the importance of a Will, it’s estimated that around 45 per cent of Australians don’t have one. Among those that do, many could find their Will doesn’t meet strict legal requirements – effectively leaving loved ones no better placed than if there was no Will at all.
Are you passing on your assets tax-effectively?
Another important part of estate planning is ensuring the effective distribution of your assets to the intended beneficiaries. Tax is a key consideration here – particularly around benefits paid out of superannuation.
If you leave your superannuation death benefit – including the proceeds of any life insurance held in super – as a lump sum to a spouse or someone who is financially dependent on you (such as a child or grandchild who lives with you), there will be no tax payable by the beneficiary.
However, if you leave that death benefit to someone who is not financially dependent (such as an adult child or grandchild) they may have to pay tax of up to 31.5%. Not only is this an unfavourable result from a tax perspective, it could mean your estate is distributed unevenly as a result.
Greater certainty for your estate
Working with your solicitor and financial adviser, you can put together a Will and estate plan to help ensure your wishes are carried out in the way you intended, and in the most tax-effective way possible.
Ongoing reviews of your estate plan every year or two help to ensure it keeps up with any changes in your personal circumstances, or changes in the rules and regulations.
To know what you’re leaving behind, and to find out more about getting your estate plan in order, talk to your financial adviser today.
 NSW Trustee and Guardian, 2012
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