10 myths of estate planning

Big super changes: what to do now?
May 18, 2016
Don’t panic – tax effective retirement income still an option
May 18, 2016

Despite increasing recognition of the importance of having an up-to-date Will, people are still making basic mistakes when it comes to estate planning, says Robert Monahan, director of HLB Estate Services.

“Most people know they should have a Will, and they recognise the importance of planning for what happens to their estate after their death, but they may not be prepared for the detail and thought that needs to go into having a fully comprehensive estate plan.

“However this detail is necessary if the estate plan is to achieve their wishes – a basic DIY Will Kit from a newsagency is almost always inadequate,” Mr Monahan said.

Some of the main misunderstandings about estate planning include:

No one can or will ‘challenge’ my Will.

Mr Monahan says this is probably the most common myth surrounding Wills.

“The reality is, there are more and more cases appearing before Australian courts where Wills have been challenged by friends and family, and no-one should assume they are exempt,” he says.

A Will can be ‘challenged’ for a number of reasons. Certain relatives have a right to seek redress if they feel you have not made proper provision for them. In some states, even neighbours who have helped with household chores have made a claim on the estate.

If I become incapacitated, my spouse or partner can make financial decisions for me.

“A spouse or partner does not automatically have that right,” Mr Monahan says.

“It can only be given via a Power of Attorney (preferably an Enduring Power of Attorney), something that can be established through an estate plan.”

I have a Will and that sets out how my superannuation and all my other wealth should be distributed, so everything is sorted.

A Will only disposes of assets that are personally owned.

“Additional steps need to be taken to dispose of assets such as superannuation, jointly owned assets such as the family home, or assets owned by a family trust or company.”

If any beneficiaries die before me, their gift automatically passes to the beneficiaries named in their Will.

“This won’t happen unless your Will also sets out specifically who will inherit in this scenario,” Mr Monahan warns.

“Beneficiaries cannot bequeath assets they haven’t yet received themselves.”

If I sell an asset that I have specifically gifted in my Will, the beneficiary will get an amount equal to what I sold it for.

Again, this gift will fail unless your Will specifically sets out what is to replace the gift.

If I give a specific beneficiary my home, they get it free of any mortgage on it.

Mr Monahan says that if you give a beneficiary a specific property burdened by a mortgage, they receive it with the mortgage debt unless you provide otherwise in your Will.

In this case, the money to pay off the mortgage must be funded, and generally come out of the estate.

There is no death duty in Australia, so I don’t need to worry about taxes.

“While there is no official death duty, there are other taxes that can impact on a deceased estate,” he says.

For example:

  • Tax on any capital gains when investment assets are sold to enable the estate to be distributed to the beneficiaries;
  • Tax on superannuation death benefits where the benefits are not received by a dependent of the deceased member.

I don’t need a testamentary trusts – they are just used by people who want to “rule” from the grave.

“Whilst historically some people used trusts to control their estate and finances after their death, a well drafted testamentary trust can actually provide beneficiaries with significant benefits,” says Mr Monahan.

“For instance, they can allow beneficiaries to manage an inheritance in a tax effective way, and also protect the inheritance from claims by others, such as former spouses.”

Testamentary trusts add unnecessary complexity to my estate.

Whilst testamentary trusts may appear complex, they can be made flexible and simple to operate if set up correctly.

I have made my Will, there is no need to review it.

“A Will is not a “set and forget” document. Family and financial circumstances change and evolve, through birth, divorce and death as well as the purchase and sale of assets. Estate planning should also change and evolve,” Mr Monahan says.

-oOo-

 

HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.

For more information please contact:

Robert Monahan
Phone: 02 9519 5040