The Consequences of Our Success: Estate Planning

This 'adulting' gig never stops! I've gotten my superannuation sorted, I've got a budget and a savings plan, and it seems that all I've done is create a new problem to address: estate planning.

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What does 'estate planning' mean?

Estate planning is the term used for the organised transfer of assets from a person who has died or become incapacitated. It usually includes a will and can be a very simple set of arrangements, or something more complex. It can also include legal documents which allow other people to act on your behalf or make medical decisions for you if you become unable to do so.

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Why is estate planning important?

It's sometimes difficult to imagine what will happen in the event of our death or incapacity - it seems like a long way away and it's easy to put planning aside for now. But the truth is that if we own any assets at all, someone is going to decide what happens to them in the event of our death. That might as well be us, right?

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Elements of estate planning

The most common element of an estate plan is a will (also known as 'last will and testament') which is a document appointing someone to administer your estate and pass on your assets according to your wishes in the event of your death. It can include your requests about your funeral, what personal items should be gifted to friends and family, and any donations to charities you wish to make. The will specifies who is responsible for ensuring that this happens - you can either nominate someone or engage a professional firm to take care of this for you.

It is not necessary to engage a lawyer to make a will but there are rules about what is needed to make a will valid. Wills are often contested in court, and consulting a lawyer may be helpful to ensure that your wishes are carried out without a protracted legal dispute.

Not all assets fall under the scope of a will. Life insurance and superannuation are transferred to a nominated beneficiary, rather than being distributed as part of the estate covered by the will. You can make a binding (or non-binding nomination) to ensure that your superannuation balance is transferred according to your wishes. A detailed explanation of the distinctions between these nominations is provided by Bridges here.

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Estate planning for life

An often overlooked aspect of estate planning is what happens when you don't die, but your capacity to make decisions is diminished either by illness or the effects of aging. Dementia Australia states that more than two-thirds of residents in aged care facilities have moderate to severe cognitive impairment, and although we are planning for a long and healthy retirement, it's important to recognise that things might not go according to plan.

A power of attorney is a legal document which gives someone the ability to make financial and legal decisions on your behalf. You can nominate someone and define what decisions they can make for you, such as financial or medical, and specify when their ability to make those decisions should begin.

Each state has different legislation around these documents which makes it important to ensure you abide by the correct guidelines. MoneySmart provides an overview of both wills and powers of attorney here. (https://moneysmart.gov.au/wills-and-powers-of-attorney)

Reflect and review

Like all other aspects of our financial situation, estate planning is something which needs regular review to ensure that it covers our changing lives. Significant events like marriage, divorce and having children are likely to prompt us to think about the long term future, but developing a habit to “health check” our estate plan regularly ensures that we are confidently prepared for the future.

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* The information provided in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances and consider seeking professional advice.

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