What is estate planning?

In brief - Don't forget to consider ownership of non-estate assets

Estate planning is the formulation of a plan that deals with the distribution or succession of your assets when you pass away. In addition to this, it also involves the implementation of documents during your lifetime—such as an appointment of enduring power of attorney and an appointment of enduring guardian—that will allow others to make decisions on your behalf when you are absent, when you require assistance or when you are no longer able to make decisions for yourself.

Assets that do and don't form part of your estate

Your estate is comprised of all items held in your sole name. Examples of your estate assets may include:

• bank accounts
• cash
• motor vehicles
• real property 
• personal items such as jewellery, artwork and furniture

Often, clients incorrectly assume that control over an asset means ownership. This can lead to poor estate planning. Some examples of assets that do not automatically form part of your estate include:

• property held as joints tenants such as real property, bank accounts and shares
• superannuation 
• life insurance
• trust property 
• company property

It is important to correctly identify ownership so that a plan outlining how you would like those assets dealt with on your passing can be put into place. This may require preparation of documents such as nominations, deeds, agreements or transfers.

Below are some useful tips to consider.

Superannuation and the risk of non-binding nominations

As superannuation does not automatically form part of your estate, you should prepare the appropriate binding death benefit nomination to either direct superannuation proceeds into your estate or, to certain beneficiaries.

Case example: Jack had $100,000 in an industry superannuation fund. Jack completed a non-binding death benefit nomination for his superannuation in favour of each of his four children. Jack passed away. As Jack's superannuation nomination was not binding, the trustee of his superannuation fund decided to pay his superannuation proceeds to two of his four children. The two children who were under 18 years of age received $50,000 each. His two children who were over 18 didn't receive anything.

It is important to seek legal or taxation advice when preparing superannuation nominations. 

Jointly owned property - what happens when a joint owner dies? 

When property is held jointly with another, on the death of a joint owner, the surviving joint owner may receive the remaining share of the property. If you would like the ability to deal with your share via your Will, you should consider altering how the property is owned.

Case example: Jill owned a property in Sydney with her friend Jake as joint tenants. Jill prepared a Will and left her whole estate to her son and daughter equally. The property was the main asset of Jill's estate. Jill passed away. Jill's children thought that they would receive the home that their mother had been living in. As Jill owned the property jointly with Jake as joint tenants, on her death it did not fall into her estate. Jake received Jill's share of the property and as a result Jill's children received substantially less than what Jill intended for them to receive.

Consider an enduring power of attorney and appointment of enduring guardian

At the same time that you arrange for the succession of your assets and for your Will to be finalised, you should consider implementing documents that can be relied on to assist you during your lifetime. Two key documents are an Appointment of Enduring Power of Attorney*, to deal with financial decisions to be made on your behalf and an Appointment of Enduring Guardian*, to deal with medical decisions to be made on your behalf. To find out more about these documents, read our recent articles:

What is an enduring power of attorney?

What is an appointment of enduring guardian?

*Please note that documents vary between states.

Advantages of having an estate plan

Having your estate plan in order will be invaluable when your family and loved ones are required to make decisions on your behalf or when it is time to administer your estate. 

In a nutshell, having your estate plan in order:

• will provide your family members with guidance
• will ensure (as best as possible) that your assets pass as intended
• will ensure that your medical care is dealt with in accordance with your wishes
• may save your estate substantial costs