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Although considerable emphasis is placed on wealth creation and protection, a third vital aspect of your financial strategy is how your wealth will be distributed after your death. Estate planning is the planning and documentation of your wishes for the distribution of your wealth following death, including assets you own personally and that you control. 

Estate planning is a specialist area and it is therefore important you obtain professional legal advice in relation to all areas of your estate plan. 

Outlined below are some of the issues you should consider in designing your estate plan. 

Powers of attorney

Powers of attorney are legal documents that let you choose someone who can make decisions for you. Powers of attorney give you choice and control. They let you choose someone who you trust to make decisions for you if you become unable to make decisions for yourself.  

If you want to choose someone to make decisions for you in case you lose capacity to make your own decisions you would need to make one or more enduring powers of attorney. 

There are four different powers of attorney. There is one general power and three enduring powers. All of the enduring powers give your decision maker the authority to act when you cannot make your own choices. 

Enduring powers are an option all people should consider because anyone can experience an accident or illness that affects their ability to make decisions. An enduring power of attorney will remain in effect until you either revoke it, or pass away.

All states and territories have different forms and requirements for powers of attorney. It is important that a power of attorney is created under the rules of the state/territory in which it is intended to be used. 

The powers of attorney cover different areas of decision making: 

  • Enduring Power of Attorney (financial) allows you to choose someone to make financial and legal decisions for you. 
     
  • Enduring Power of Attorney (medical treatment) lets you choose someone to make decisions about your medical treatment. 
     
  • Enduring Power of Guardianship lets you choose someone who can make lifestyle decisions for you. 
     
  • General Power of Attorney allows you to choose someone who will make specified financial and legal decisions for you. For example, if you are travelling overseas and need someone to take care of your property and finances while you are away you would have to give your chosen decision maker power of attorney for a limited time. This means banks and other authorities would follow their instructions. A general power of attorney becomes invalid if you become unable to make your own decisions. 
           

 

Superannuation and Pension Nominations

Death benefits are funds paid upon death by the Trustee of your superannuation fund to your estate or to the beneficiary you have nominated. When nominating a beneficiary, it is important you understand that there are implications for each choice you make, including the type of nominations that you make. 

Many death benefit nominations made by members of superannuation funds are not binding on the superannuation fund trustee. This means that the trustee of the super fund may exercise a discretionary power to determine how the benefit is distributed and to whom. 

Nominations may also be binding subject to the rules of the trust deed. A death benefit will be binding on the trustees if: 

  • The nomination form includes the name of each person(s), or class(es) of person (e.g. spouse), and the allocation of the death benefit amongst nominees is clear; 
     
  • Each death benefit nominee is a legal personal representative or dependent of the member; 
     
  • The nomination form is dated and signed by the member in the presence of two adult witnesses, neither of whom is a nominee named in the notice; 
     
  • The nomination form contains a declaration by the witnesses, stating that the member has signed and dated the nomination form in their presence; and 
     
  • The nomination is valid. 

If your nomination is lapsing, it will only be valid for three years. Consequently, a new nomination form will need to be provided to the trustee every three years to ensure that your nomination is valid. You may also change your nomination any time within the three-year period. It would be prudent for you to ensure that your nomination is updated. 

 

It is important to review death benefit nominations regularly and to include full details of your beneficiaries - including their relationship to you, their full name (including any middle names) and their address. 

Keeping your superannuation fund trustee informed of any changes to your beneficiaries - or changes to their personal details - will make the task of distributing your super much less complex for all involved. 

Death benefits may have tax implications for the receiving beneficiary, so you should discuss your intentions with your solicitor. You can then ensure your Will fully reflects your intentions as well as make an informed decision on the type of nomination appropriate for your circumstances. 

Funeral Bonds

A funeral bond is a specialised investment designed for the sole purpose of accumulating funds to meet your future funeral expenses. Consequently, once you have purchased a Funeral Bond you will no longer be able to access this capital. 

Money invested in Funeral bonds (up to the Funeral Bond Allowable Limit of $14,000 per person) is exempt from Centrelink means-testing, provided that you have not also arranged and purchased your funeral in advance. The Funeral Bond Allowable Limit is indexed in line with CPI pension increases every 1 July. 

Funeral bonds that were issued by friendly societies prior to 30 Nov 1999 are grandfathered and are permanently exempt from tax. Amounts attributable to funeral bonds issued between 1 Dec 1999 and 31 Dec 2002 inclusive are exempt from tax for the recipient.  

For funeral bonds issued on or after 01 Jan 2003, income credited to the bond continues to be exempt for the policyholder, however the policyholder's estate is liable for tax on any income credited to the bond from the date of lodging the investment. 

 

Additional items

A will is the first step in ensuring the distribution of your estate is actioned in accordance with your wishes. Without a will, upon your death a court controls the distribution of your estate and the persons to whom your estate is distributed to, which may result in delays in asset distribution. 

An executor is the person named in a will to carry out your wishes after you die. They organise to collect your assets, pay the debts, and distribute the property as set out in your will. 

It is important to ensure that your will: 

  • Nominates executors (and successor executors) for your estate who are likely to survive you and who clearly understand your wishes. 
     
  • Nominates beneficiaries in relation to the whole or part of your estate and nominates second choice beneficiaries, should your first choice predecease you. 
     
  • Bequeaths monetary value or a percentage of your estate rather than a specific asset, as there is the risk that an asset may not be in existence at the time of distribution of the estate. 
     
  • Nominates assets to be held in Trust for beneficiaries under 18 years of age. 

A testamentary trust is established under a will and activated as a result of death of the testator (person making the will). Only those assets that form part of the testator’s estate can be placed into a testamentary trust. Therefore if you establish a family trust to hold your assets, the assets held within the family trust will not form part of your estate. 

The trustee has absolute discretion over the distribution of income and capital to beneficiaries. In some circumstances, the law will set up a testamentary trust when beneficiaries are unable to hold or deal with property in their own name (e.g. in the case of children under 18). 

A trust must ‘vest’ (distribute the trust assets) within 80 years from the date of death of the testator. It is possible to create a vesting date that is linked to the death of a person such as a beneficiary or some other event by the Family Court in the division of matrimonial property in the event of a marriage breakdown and property dispute. (The Court, however, may take into account the presence of a trust in calculating what they consider to be an equitable distribution of the non-trust assets.) 

The benefit of an insolvent or potentially insolvent person can be provided for. By having an independent third party trustee the assets in the trust may be out of the reach of creditors but at the same time available for family members and, in particular, the children of a bankrupt person. 

The trustee has total flexibility to invest in whatever assets they wish (subject to the trust deed) and can draw on capital or income at any time. 

In incorporating a trust arrangement into a will, it is difficult to perceive what the needs and requirements of beneficiaries will be in the future. Wills are prepared on the basis of the testator’s current circumstances as well as their wishes for the future. It is therefore important for testators to consider a mechanism in a trust whereby the trust funds can be distributed fairly quickly and, if necessary, the trust is brought to an end. 

In the case of beneficiaries who are in receipt of social security benefits, assets held in a testamentary trust for their benefit are no longer exempt assets. This may result in a reduction of social security entitlements (unlikely to be the case for your children). 

 

They allow for income and capital to be divided between beneficiaries, at the time and in amounts as determined by the trustee. This makes it possible to reduce tax, as distributions to beneficiaries under the age of 18 years are taxed at adult rates rather than the usual children’s penalty tax rate (which can be as high as 66%). The trustee can take into account the other income of beneficiaries prior to distribution to minimise tax and maximise the distribution to beneficiaries. 

The trustee controls the estate assets until the beneficiaries are of sufficient age to hold the assets in their own name. 

Estate assets can be prevented from being vested directly into a beneficiary’s own name. This may help protect assets in the event of a family breakdown. Assets in a trust will not be included  

Togethr Financial Planning Pty Ltd (ABN 84 124 491 078, AFSL 455010) trading as Equip Financial Planning and Catholic Super is a subsidiary of Togethr Holdings Pty Ltd (ABN 11 604 515 791).  It is a related entity to Togethr Trustees Pty Ltd (ABN 64 006 964 049, AFSL 246383), the trustee of the Equipsuper Superannuation Fund (ABN 33 813 823 017) whose divisions include Catholic Super.

This information is general information only. It has been prepared without taking into account your personal investment objectives, financial situation or needs. It is not intended to be, and should not be construed in any way as, investment, legal or financial advice.