The importance of estate planning
Posted by Northadvisory on April 20, 2022
Nobody likes to think about the inevitable. Talking to family and friends about your own death is not high on your conversation list.
Like everyone, your day-to-day life is filled with busy activities and it’s not unusual for the task of getting your affairs in order to sit at the very bottom of your to-do list.
But estate planning is important. Taking the time to make clear arrangements and to keep them updated will provide both you and your loved ones valuable peace of mind.
There is a lot more to estate planning than just writing your will and putting it in your files for someone to find in years to come. It is a complete strategy that outlines how your assets will be distributed to your beneficiaries after you die.
This isn’t an easy task and is best done with the support and guidance of a professional accountant or financial advisor. They can help you determine exactly what you want and advise on the best way to achieve your wishes.
While you might think that estate planning is something to do when you are nearing retirement, you should actually start thinking about it now.
Your estate is made up of all your assets, and you begin accumulating wealth as soon as you start earning an income… so even if you are only in your 20s, it’s worthwhile considering how you want your assets distributed.
If you are a newly employed young person, the first stage of estate planning may be writing a simple will and making sure your superannuation beneficiaries are set up correctly. Then as your circumstances change and your wealth grows, you can speak with an expert about complex estate planning processes and modify your plans accordingly.
It’s vital that you understand your legal rights and responsibilities, so we recommend seeking professional advice. An advisor can also give you guidance on the most tax effective strategies when it comes to the transfer of your assets.
Review your will
When was the last time that you checked your will? Making sure that you have a current, valid will is fundamental to your estate plan.
It is a legally binding document that not only describes how you want your assets distributed, but it also helps to minimise the potential for disputes once you are gone.
Your will also saves your family and other loved ones from the stress and worry that can accompany complex legal matters.
Here in Australia, if someone dies without a will in place, their assets are distributed according to the inheritance laws of the state they live in. If this happens, it could have a significant tax implication for your beneficiaries.
The last thing you want is someone you love being burdened with an additional tax bill while they are grieving your loss.
Think about tax
Estate planning does have complex tax considerations that you need to think about. Your individual circumstances will dictate the complexity of your strategy, which is another reason why you should seek professional guidance.
You want to make sure that you set up an effective transfer of assets. For example, a testamentary trust is a simple, tax effective way to make sure your assets reach their intended beneficiaries. They tend to provide protection from legal action and attract better marginal tax rates when trust income is distributed to children or minors.
It’s important to note that your superannuation is not included in your estate. It is distributed as a superannuation death benefit, not as part of your will. Your binding death nomination determines who will receive the distributed funds, so you want to make sure you have that information up to date at all times.
Under super law, how the benefit is paid – either as a lump sum or an income – and who it is paid to depends on who you nominate as your beneficiary.
You can only nominate the executor of your estate if they are classified as a dependant.
These super regulations are difficult to navigate, and we recommend having an advisor review your nominations to make sure they are valid.
Seek professional advice
You want to make sure that when you are gone, the structures you have in place will work effectively for your beneficiaries.
This is especially important if you own a business, have been married more than once or have a blended family. These situations can demand a more complex estate plan to ensure your assets are properly distributed.
We understand that estate planning can be challenging, so here at North Advisory our aim is to make those conversations as easy as possible. If you’d like to find out more about how we can help you, please contact us today.
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