Estate planning: where do I start?

When you started investing, you might not have thought about estate planning. However, creating a strategy for how your estate will be managed is vital, especially once you’ve started building an investment portfolio. This could include how you protect assets, minimise taxes, and ensure a smooth transition of wealth across generations.

What are the main steps involved in estate planning?

Estate planning is more than creating a Will. Setting up your estate could include:

Reviewing your Superannuation (Super) beneficiaries
Creating Wills and assigning the Power of Attorney
Creating Trusts
Other considerations including insurance bonds

Super is different

Your Super doesn’t automatically form part of your estate and/or your Will. You will need to instruct your Super fund, or funds, where you want your money to go when the time comes. A super beneficiary is an eligible person/s you nominate to receive the money from your Super accounts, including any insurance payout (death benefit) when you die. Contact your Super fund to name or update your beneficiaries.

Remember:

If there are no beneficiaries nominated, the super fund trustee will decide who your money goes to.

Wills and Powers of Attorney

Your Will is something you may want to update as your situation changes. This could happen after marriage, separation or divorce, the birth of children and grandchildren, or even the loss of your spouse or partner. Each, or all, of these events may require us to update our instructions or wishes for our assets to be distributed when we die. A common way to create a Will is to pay a solicitor to draft and redraft this for you.

Remember:

If you don’t have an up-to-date Will, the law will decide who your money goes to.

The Power of Attorney is a document where you give someone else the legal right to make decisions about your affairs on your behalf. This is an important and powerful responsibility, so it is best to choose someone who you trust, and who is financially responsible. There are three distinct types of Powers of Attorney:

General Power of Attorney: This allows someone to make financial and legal decisions for you. This is for a specified time, for example, if you are travelling or temporarily unable to manage your affairs. Importantly, it is only valid while you retain mental capacity. If you lose the ability to make decisions for yourself (due to illness or injury), the General Power of Attorney automatically becomes invalid.
Enduring Power of Attorney (EPA): This allows someone to make financial and legal decisions for you, if you lose mental capacity – for example, due to illness, injury or age-related conditions like dementia.
Medical Power of Attorney: This allows someone to make medical decisions for you, if you ever become unable to do so for example, due to unconsciousness, illness or injury. This Power of Attorney is limited to medical decisions only.

Remember:

A Power of Attorney is a powerful, legally-binding document. You should ensure you have a solid understanding of what powers you’re granting, clear agreement on your expectations and boundaries with the person you appoint and you choose someone you trust implicitly.

What are Trusts and what do they offer?

A Trust is a structure that could offer many benefits. Trusts can:

Protect the assets of the Trust from creditors or claims,
Enable a smooth transition of wealth to future generations,
Avoid public reporting of records (as this is not required),
Via a Trustee, decide how income is distributed,
Provide long-term support or care for dependents, and
Hold property or investments under one structure.

There are several Trust options for you to consider. For example, a Testamentary Trust is one that is written into your Will. It takes effect when you die, and it's administered by a trustee, usually named in your Will. The trustee looks after your assets until your beneficiaries can access them. This is commonly either when:

A child or grandchild reaches a certain age, or
A beneficiary achieves a specific goal (for example, they get married or earn a particular qualification).

A lawyer or solicitor can help you determine if setting up a Trust is right for you. When deciding, you should have a goal or purpose in mind, for example, protecting the family home. Then, define who the beneficiaries are, if beneficiaries could change in the future, the control of assets and distributions, and how long the Trust should operate for.

Remember:

A Trust usually continues after your death, or in the case of Testamentary Trusts, they may start after your death. The Trust determines who gets the assets or income from the Trust, even if your Will says something different. This change or ownership is a benefit and a risk you should consider before setting up a Trust.

Other things to consider

There are other estate planning considerations for investors. These include planning for a funeral and insurance bonds.

Funerals can cost $4,000 to $15,000¹, so if you can, setting some money aside to cover funeral costs could help your family after your death. This could be a in the form of a savings account, prepaying for the funeral, funeral insurance, or funeral bonds.

Insurance bonds, which are also known as investments bonds, are something you may want to consider as part of your investing legacy. These are specific investments where you can make regular investments over time, and they can offer some tax advantages, depending on the product provider. Tax advantages could include the product provider paying the 30% tax on earnings in the bond, rather than the bond holder paying tax on earnings at their marginal tax rate. Some insurance bonds offer a 10-year and 125% rule, meaning if annual contributions do not exceed 125% of the previous year, for 10 years, the bond holder does not pay any personal income tax on earnings.

Estate planning involves many important considerations to help secure your future and protect your loved ones. These could include nominating beneficiaries for your super, creating a Will, setting up Powers of Attorney, considering the benefits of establishing a Trust, funeral planning options and insurance bonds. While this list is not exhaustive, breaking these down into smaller, more manageable tasks can make the process less overwhelming.

The end of the year or start of a new one can be a good time to kick off your estate planning. It’s often a time when you spend time with your family and may have time off work, making it an ideal opportunity for you to plan ahead.

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