Phone (07) 3221 1122
Hot Issues
ATO reviewing all new SMSF registrations to stop illegal early access
Compliance documents crucial for SMSFs
Investment and economic outlook, October 2024
Leaving super to an estate makes more tax sense, says expert
Be clear on TBA pension impact
Caregiving can have a retirement sting
The biggest assets growth areas for SMSFs
20 Years of Silicon Valley Trends: 2004 - 2024 Insights
Investment and economic outlook, September 2024
Economic slowdown drives mixed reporting season
ATO stats show continued growth in SMSF sector
What are the government’s intentions with negative gearing?
A new day for Federal Reserve policy
Age pension fails to meet retirement needs
ASIC extends reportable situations relief and personal advice record-keeping requirements
The Leaders Who Refused to Step Down 1939 - 2024
ATO encourages trustees to use voluntary disclosure service
Beware of terminal illness payout time frame
Capital losses can help reduce NALI
Investment and economic outlook, August 2024
What the Reserve Bank’s rates stance means for property borrowers
How investing regularly can propel your returns
Super sector in ASIC’s sights
Most Popular Operating Systems 1999 - 2022
Treasurer unveils design details for payday super
Government releases details on luxury car tax changes
Our investment and economic outlook, July 2024
Striking a balance in the new financial year
The five reasons why the $A is likely to rise further - if recession is avoided
What super fund members should know when comparing returns
Insurance inside super has tax advantages
Are you receiving Personal Services Income?
It’s never too early to start talking about aged care with clients
Articles archive
Quarter 3 July - September 2024
Quarter 2 April - June 2024
Quarter 1 January - March 2024
Quarter 4 October - December 2023
Quarter 3 July - September 2023
Quarter 2 April - June 2023
Quarter 1 January - March 2023
Quarter 4 October - December 2022
Quarter 3 July - September 2022
Quarter 2 April - June 2022
Quarter 1 January - March 2022
Quarter 4 October - December 2021
Quarter 3 July - September 2021
Quarter 2 April - June 2021
Quarter 1 January - March 2021
Quarter 4 October - December 2020
Quarter 3 July - September 2020
Quarter 2 April - June 2020
Quarter 1 January - March 2020
Quarter 4 October - December 2019
Quarter 3 July - September 2019
Quarter 2 April - June 2019
Quarter 1 January - March 2019
Quarter 4 October - December 2018
Quarter 3 July - September 2018
Quarter 2 April - June 2018
Quarter 1 January - March 2018
Quarter 4 October - December 2017
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 3 of 2017
Articles
ATO to release further guidance on reserves
A real-world benchmark for SMSF performance
How is your super going, ready for retirement?
Our 'hardest' SMSF tasks
Lack of literacy promotes unrealistic goals
Young investors: Time is on your side
Is your SMSF retirement-ready?
Key Economic Indicators, 2017 - updated
Investors acting their age
ATO locks in details, addresses panic on real-time reporting
Government ‘undermines’ tax system in new moves on property expenses
Multiple super accounts in a 'gig' society
Why Australian retirees aren't happy and what we can do about it
Doing a budget is a good idea but ....
Technical expert flags estate planning strategies for 2017-18
Government to shut down salary sacrifice loophole
Items that heat up your depreciation deductions
‘Tens of thousands’ of SMSFs at risk with ECPI
Do’s and don’ts of estate planning
LISTO to help boost women’s super
Smart ways to stretch retirement money
Low economic growth likely for years
Recorded Crime - Offenders, 2015-16
Adequacy of savings still a concern among Australians
Do’s and don’ts of estate planning

Most financial planners are now fully aware of the importance of estate planning when it comes to developing a comprehensive financial plan for their clients.



       


 


Estate Planning can be a complicated area and it’s impossible to create a one-size-fits-all approach. However, there are a few basic rules and tips that can help. Following are my top do’s and don’ts for estate planning.


Do have an up-to-date will; don’t leave it at that


Most financial planners know that a will is just one part of a comprehensive estate plan – and in some cases, a relatively small part.


A will deals only with estate assets – assets owned directly by the will-maker. It doesn’t deal with non-estate assets; that is, the assets that may be controlled by the will-maker but not owned.


This may sound quite straightforward but it isn’t always. In fact, it’s not always easy to know which assets are owned and which are just controlled.


Take the example of the Flynn family. David is aged 58 and Donna is 56; they have three children, all in their 20s. Their wealth position is:


Wealth

 

Home owned as joint tenants

$2,500,000

Investor property owned as joint tenants

$1,000,000

David’s super in SMSF

$1,000,000

Donna’s super in SMSF

$500,000

Life insurance in super

$2,000,000

Family trust investments

$1,000,000

Total wealth

$8,000,000

 

 

Liabilities

 

Mortgage debt on home

$500,000

Mortgage debt on investment property

$750,000

Total liabilities

$1,250,000

Net wealth

$6,750,000


 


So, in the event of the death of either David or Donna, which of these assets pass via the will?


The answer is, none of them. When Donna or David die, none of these assets will come into their estate and therefore cannot be directed by a will.


The reasons are:


1.    The real estate is owned as joint tenants, so the survivor automatically inherits. Joint tenants cannot pass their interest via a will


2.    Superannuation is held in a trust environment and the trustee of the super fund decides to whom and how a super death benefit is paid. To ensure the death benefit passes to a preferred beneficiary, they would need to have in place a binding death benefit nomination


3.    The same rules apply to any life insurance held in super


4.    Assets held in a family trust are owned by the trustee of the trust. Therefore, it is important to agree upon and document who will control the trust following the death of either David or Donna, as the ultimate power lays with the control.


Do have a comprehensive estate plan


The essential documents in an estate plan include:


  • An up-to-date will
  • An up-to-date enduring power of attorney
  • An up-to-date enduring guardianship
  • An up-to-date SMSF deed
  • An up-to-date death benefit nomination (if applicable)
  • A review of control issues of any investment trust
  • A review of the ownership state of all types of wealth

It’s worth noting that while for most clients, it will be best to have a binding death benefit nomination for superannuation, in some cases it’s preferable not to, so the money doesn’t come into the estate. For example, a death benefit pension to a spouse can be paid by a super fund. Therefore David and Donna may prefer the super death benefit to remain in the super fund in order to pay the survivor a pension.


This is a good example of how it is impossible to have a ‘one size fits all’ approach to estate planning.


Do document the things that are important


An estate plan must be able to stand on its own and therefore needs to deal with any contingencies or concerns. Once the will-maker is dead, it’s impossible to make any further changes or adjustments! So they need to get it right now, and this is where professional advice can be worth its weight in gold.


For instance, any unwritten understandings between couples could be included. As an example, Donna and David both agree that after they have both died, they want their remaining wealth to go to their children to enjoy, and also to any future generations. And they don’t want their children to squabble over their will.


Rather than take it for granted their children also know this and agree with it, it’s a good idea for Donna and David to put it in writing.


In addition, they can’t assume anything – that their children will behave in the way that they want them to, or that their children will automatically know or understand why Donna and David made the decisions that they did. If anything needs explaining, it’s best to do it in person, and reinforce it by leaving a document in the estate plan to account for the choices made.


Don’t try to rule from the grave


The over-riding aim of most estate plans should be to protect loved ones, not rule from the grave. This is why it’s important to document any understandings or agreements.


If necessary, also put in place strategies to protect children from themselves, and also from the financial effects of failed relationships.


One approach we have started using is an Inheritance Protection Agreement (IPA).


The way an IPA works is that firstly, Donna and David agree that if, after the death of the first of them, the surviving spouse was to begin a new relationship, then the survivor will have a financial agreement (commonly known as a ‘pre-nup’) with the new partner to prevent any claim.


Secondly, Donna and David make it clear their wish is for each child to have a long and happy relationship; however as a matter of principle they believe that any inheritance should not be carved up if there is a relationship breakdown. They therefore direct that after their deaths, their children should enter into an IPA with any partner to exclude any claims on inheritances and, if the child does not have the benefit of an IPA, other protection provisions are incorporated in the wills.


 Do help children if possible


It’s becoming increasingly common for parents to help their children financially during their lifetime – for instance, helping them buy their first home, or get a business off the ground.


While it is a good idea to help children if there is capacity to do so, it’s best not to gift the money but rather to lend it. This should be carefully documented so that the loan can be recalled if the parents need the money later in life, or if the child goes through a relationship breakdown.


It’s important that other children aren’t left feeling disadvantaged as a result of assistance given to one child, as this could lead to bad feeling in the family, and potentially to challenges on the estate. Provisions can be placed in the Will to take into account any gifts or loans in the ultimate distribution to the children.


Don’t put it in the ‘too hard’ basket


Understandably, no-one likes to think of their own death or incapacity.


But when clients are refusing to think about their estate plan because they say they aren’t planning on dying any time soon, I only need to remind them of Princess Diana, Heath Ledger or even James Dean or Buddy Holly, who all died before age 40.


It’s never too soon to have an estate plan, and anyone who has superannuation, children or owns their own home, has enough assets to make it worthwhile.


Likewise, an estate plan is not a ‘set and forget’ approach. It needs regular reviewing and updating to ensure it is still up to date. The birth of a grandchild, the purchase of a new asset, or a relationship breakdown, could all make the existing estate plan incorrect.


 


By Robert Monahan
HLB Mann Judd Sydney
June 8, 2017
www.professionalplanner.com.au


 


 


 




19th-July-2017
 

Retirewell Financial Planning Pty Ltd
ABN 29 070 985 509 | AFSL No. 247062
Phone 07 3221 1122 | Fax 07 3221 3322
Level 24,
141 Queen Street (Cnr Albert Street)
BRISBANE QLD 4000
Email retirewell@retirewell.com.au