Estate planning is an important process which involves strategically planning the distribution of one’s assets in the event of passing or an incident prohibiting one to make rational decisions for themselves.
While one of the most common motivators of estate planning is preparing for the future, there are a few benefits that are not touched on as much as they should.
Like all other financial decisions, the amount of tax that you pay will have an impact on your estate plan. It is important to remember that even in the event of passing on, your financial records and income history will continue to live. Whilst there are no death duties in Australia per se, the beneficiaries of your assets may still have to pay the required income tax, superannuation death benefits tax (when paid to a non-tax dependant) or Capital Gains Tax, where applicable.
Detailing how you wish your superannuation to be distributed can significantly reduce the tax you pay. Binding beneficiary nominations can be made to your estate to ensure that your superannuation is paid out as set out in accordance with your wishes detailed in your Will. Eligible beneficiaries for your super on your death are very specific and tax treatment will vary. In the absence of a binding nomination or a valid nomination, the trustee of the super fund will distribute your superannuation to a super dependant at their discretion and often with no regard to your Will. By clearly stating in your Will how you wish for your super to be distributed, inserting appropriate clauses into your Will to minimise tax and having a valid and up to date beneficiary nomination in place, you can ensure your loved ones get the maximum benefit of your estate, rather than the tax man.
In the unlikely event that you pass on prematurely, you may leave a young family behind with minimal support or funds. A proper estate plan will help you organise finances for your children to inherit, whether this be in the form of a trust or another arrangement. It will also allow you to appoint guardians to take custody of your children as they grow into adulthood and raise them in accordance with your wishes.
An estate plan can also help overcome complications that come with families that have blended from previous partners. If an individual wishes to only pass on their estate to their biological children, a proper plan needs to be laid out to ensure there are no complications in distributing the individual’s wealth if their current partner has children from a previous relationship or remarries.
If you are the trader of a business, it is important that you detail the passing down of operations management to whomever is the successor and determine how the finances of the business will be organised after the transition. By dictating how you wish for your business to be handed down, you are not only alleviating any confusion within the business, but you ensure that the correct person is carrying on the business and your legacy in the manner that you wish for it to be run.
You don’t have to necessarily pass on your wealth to individuals. By planning out the distribution of your estate, you are able provide benefits to the charities that you wish to see supported by your estate. An effective estate plan gives you the say on how your wealth is distributed and who benefits, which may be any individual or cause that is close to your heart leaving a lasting legacy for the community.
A good estate plan is one that has been developed holistically, taking into consideration individual family dynamics and circumstances, estate and non-estate assets, tax benefits and wealth accumulation. At Morrows, our Legal, Tax and Private Wealth teams use a collaborative approach to develop estate plans that meet the diverse and specific needs of every client.
To find out more about our estate planning services, please visit www.morrows.com.au or contact us on 03 9690 5700.