An estate plan involves more than signing a Will and leaving it in a safe place. An effective estate plan requires consideration of numerous matters and ongoing review to ensure it reflects your testamentary wishes and covers unexpected events.

In this article we look at some misconceptions about Wills and estate planning and dispel some common myths. This information is general only and you should obtain professional advice specific to your circumstances before you undertake any course of action.

Myth: “I have a Will – isn’t that an ‘estate plan’?”

Whilst a Will is a great start to planning your estate, and makes provision for how your assets and possessions will be distributed on your death, a Will alone is rarely enough. For example, a Will does not cover circumstances during your lifetime where decisions about your assets or your health may need to be made on your behalf.

A comprehensive ‘estate plan’ ensures that not only do you have a properly considered Will, it also ensures  a trusted person is appointed to look after your financial and property affairs when you are away or if you are incapacitated via a power of attorney document and similarly, an appropriate person is appointed  to make health and lifestyle choices on your behalf if you are incapacitated via an appointment of enduring guardian.

Tip: Various legal documents form part of your overall estate plan. Think about what you would do if the unforeseen happened and you could no longer manage your affairs. Talk to your lawyer about the benefits of appointing an attorney or guardian to assist you if you are incapacitated.

Myth: “Only the rich need an estate plan”

This is certainly not the case. No matter what your financial status, an estate plan enables you to appoint a trusted person to administer your assets when you die, ensure your hard-earned property is left to beneficiaries chosen by you and not others, maximise the gifts and benefits you leave to your loved ones through appropriate taxation planning, and prepare for unexpected crisis (illness and incapacity) by appointing somebody you trust to deal with your affairs when you cannot.

Ensuring proper consideration is given to all of your assets and all potential circumstances via a proper estate planning process, is important for anyone with assets, even where the value is relatively modest. And remember – there are many additional aspects to your assets, including superannuation and life insurance, that may mean your situation is not as modest as you may think.

Tip: Think about your current assets and the assets you aim to accumulate in the future – they soon add up. Think about who you would like to benefit from your estate and how you can maximise the value of your assets for your beneficiaries.

Potential Myth: “I can leave joint property to whomever I wish”

This is true for many assets, but not all.

A prime example of an exception to the rule is jointly owned assets. The right of survivorship means that upon the death of an owner of a jointly held asset, that asset automatically passes to the surviving owner/s, despite any contrary intention expressed in a Will.

Jointly held assets such as real estate often comprise the bulk of the estate’s value. For spouses and de facto partners, this may be ideal as many would simply wish the surviving partner to benefit. However, there are many situations where joint ownership may not be appropriate such as property held with certain other family members, non-family members or other entities, or property that remains jointly held after divorce or separation.

Another example is where assets are held in a trust. It is the terms of the trust, and not your Will, that determine how those assets are dealt with, including after your death. However, careful consideration of the trust with the assistance of an experienced estate planning lawyer may be able to provide alternatives where you can still have some certainty as to how the trust assets will be dealt with following your death.

Tip: Review your assets (real estate, bank accounts, investments) and check how they are held. Your lawyer can assist in this process and if necessary, sever joint tenancies so that your share of property can be separately held and left to whomever you wish, or review trust deeds and advise as to whether any special provisions can be included in your Will or alternatively if the trust deed can be amended.

Potential Myth: Superannuation is automatically dealt with in my Will

Many people assume their superannuation will be divided up in accordance with the wishes in their Will, but that is not necessarily the case.

Superannuation death benefits, comprising a member’s superannuation account balance and any life insurance payments held for their benefit in their superannuation fund, can only be paid directly to a ‘dependant’ (defined by legislation), or to your legal personal representative (that is, your estate). Whom of your dependants or your estate actually receives the death benefit, and in what proportions, is determined by the fund trustee after your death, or in accordance with a valid Binding Death Benefit Nomination (BDBN) made by you during your lifetime. With the right valid BDBN in place, you can direct that your Superannuation Death Benefits are to be paid to a specified ‘dependant’ or alternatively to your Legal Personal Representative to then deal with it in accordance with the terms of your will.

An experienced estate planning lawyer can help you weigh up the benefits of each approach, and assist you in preparing a valid BDBN.

Tip: Review your superannuation nominations to determine whether you have in place a valid and current BDBN. Talk to your lawyer about the formalities required to execute a BDBN and strategies to minimise adverse tax implications on the payment of your death benefits to your intended beneficiaries.

Potential Myth: “If I die without a Will my assets go to the Government”

If you die without a will (also known as ‘dying intestate’), your assets are distributed according to a pre-determined formula set by legislation in each state and territory. The legislation attempts to reflect society’s ‘expectations’ as to who should benefit from a person’s estate. They provide a specific order of distribution to the deceased person’s next of kin.

The problem with these statutory rules is that they do not necessarily consider the wishes of a deceased person nor his or her unique circumstances. Indeed, dying intestate can mean people with whom the deceased had no relationship (or a hostile relationship) can receive a substantial part (or even the whole) of the estate – a situation that may have horrified the deceased had they known.

Tip: Don’t rely on a statutory formula to determine those entitled to benefit from your estate. Although only in the most extreme cases will the Crown have a right to an intestate’s estate, a Will is essential to nominate with clarity your executor and chosen beneficiaries.

Myth: “Some things have changed in my life, but I’ve already got a Will, I don’t need to change it”

You should always review your Will when your personal and financial circumstances change significantly. Your Will may already provide for children (or future children) and you may not need to update it for every change, but it is good practice to review it when you experience major changes in your life. If an estate planning lawyer is involved in the process, they can advise you whether the change in your circumstances necessitates any changes to your Will.

You should also be careful about naming specific assets in your Will, for example details of a particular vintage car that you may own. A gift in your Will of a specific asset of considerable value which is disposed of during your lifetime may fail and cause an unintentionally unequal distribution amongst beneficiaries.

For example, if a person’s will leaves a ‘right of residence’ or life estate in their home to their spouse, and they subsequently sell that home and buy a new home, the Will may not necessarily leave the right of residence in the new home to the spouse, who may be left without anywhere to live.

Wills are ideally drafted to provide flexibility with respect to the nature and value of assets held, and to provide for future generations (unborn children) and substitute executors and beneficiaries. However, sometimes certainty or specificity is required, and in these cases the need to update the Will when circumstances change is significantly greater.

Tip: Flagging to review your Will each year, for example when your annual tax return is prepared, makes good sense. In many cases, no changes will be needed but it is good practice to make a habit of a regular review. If you separate, divorce, or your financial or personal circumstances change significantly contact your lawyer immediately to see how these changes impact your existing Will and, where necessary, prepare a new Will.

Conclusion

Effective estate planning takes time and careful consideration. If you or someone you know wants more information or needs help or advice, please contact us on (02) 9923 2321 or email enquiries@somervillelegal.com.au and our Wills & Estates team would be pleased to assist you further.