Children living overseas, working out distribution to a complex family structure, and even protecting your assets from unwanted beneficiaries are some of the most common estate planning issues I’m asked to solve.
Estate planning goes beyond having a will and power of attorney. Often what is required is a detailed plan that considers the succession of each asset a person owns or has an interest in.
An estate plan is developed during a person’s lifetime to ensure their assets are protected and distributed according to their wishes when they are incapacitated or die.
Here are some key things to keep in mind when planning your estate.
Considering family complexities:
As family structures become more complex, parents need to consider how to manage the succession of their assets to ensure fair and equitable distribution to beneficiaries. Many family disputes occur when beneficiaries feel left out or don’t think they got a fair share.
Having a financial arrangement in place at the start of a relationship can ensure each party agrees on the assets they brought into a relationship and how the assets would eventually be distributed to respective children or beneficiaries.
This provides clear direction and assurances that natural and stepchildren have been accounted for.
It’s also worth considering the potential for future relationship breakdowns of beneficiaries. If the children inherit assets directly in their names these assets may become caught up in relationship breakdowns and family law disputes.
An estate plan can protect the family’s wealth and ensure it is passed down to your own bloodline. In this case, a testamentary can be useful to protect how the family assets are passed down to the children.
Australia does not have an inheritance tax but on death, there is a “deem disposal” tax event with tax payable either by the estate or the beneficiary upon the transfer of assets.
If your children live or work in another jurisdiction and have taken residency, be aware they may be subject to inheritance tax in that country.
Parents may need to consider protecting their children who are in professions such as medicine, law or business who may be subject to professional indemnity claims. Having inherited assets held in a testamentary trust may protect their inheritance from potential future claims against their professional work.
For children with disabilities or special needs, you might consider a disability trust as part of your estate plan.
This would involve appointing a trustee, legal guardian and financial manager to manage trust investments to ensure the needs of the child are taken care of well past the parents’ lifetime.
Different trust structures can be enacted for beneficiaries with other special needs (for example, substance abuse) so they only receive an income but no access to the capital if they lack the ability to manage their own financial affairs.
Asset equalisation strategies are common for business owners and farming families, where one child may be involved in the family business and other children may not be.
If the business is intended to continue as an ongoing concern, strategies are needed to ensure the enterprise can be passed on to the child working in the business. This involves taking up insurance cover so beneficiaries not involved in the business can receive some funds without the need to sell or dissolve the business.
Protecting your estate from unwanted beneficiaries:
An effective estate plan ensures ownership of assets passes to the correct beneficiaries and considers potential tax liabilities and how this can be minimised.
If you want to control who ultimately benefits from your assets (maybe you have no children or really don’t like your in-laws) it is important to have an estate plan that outlines your specific wishes, so assets are passed to intended beneficiaries effectively and with as little disruption as possible.
If you have assets held in other tax entities, such as a family trust, superannuation fund or company, your estate plan must be comprehensive and cover how you want these entities treated.
Other legal documents (such as trust deeds, partnership agreements, buy-sell agreements and binding death benefit nominations) could be required to establish a holistic estate plan.
So, creating an effective and comprehensive estate plan may require you to engage a number of specialists, such as a financial adviser, tax adviser and estate planning lawyer. Doing so can avoid many family dramas and unnecessary legal costs and help preserve relationships and family harmony.
Advice given in this article is general in nature and is not intended to inﬂuence readers’ decisions about investing or ﬁnancial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any ﬁnancial decisions.
This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.
As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.
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