The importance of Estate Planning

A famous quote from the movie Meet Joe Black rings true “there is nothing certain in life except for death and taxes”.

By preparing an Estate plan in advance, you have the opportunity to review your assets and create a strategy whereby the distribution of assets upon your death can be managed in line with your wishes.

Planning this can allow you the opportunity to seek advice from accountants and lawyers to develop a plan which will minimise any tax payable upon your death, including capital gains tax consequences on the sale of any business assets, and ensure you understand any tax payable of assets held within your superannuation fund.

A common mistake that people make is that they may leave the family home to one child and an investment property or business to another.  They believe that they are leaving something of equal value to each child.  What they don’t understand is that there are tax implications on the investment property or business and therefore, the value is reduced upon their death.

Therefore, if it is important to you, you may wish to understand the effect of your wishes upon your beneficiaries so that your wishes are exactly as you intend.

Testamentary Trusts

A testamentary trust is a vehicle often used in developing Estate Plans. It is a trust established under a valid will, and operates similarly to a discretionary family trust with a trustee. This trust allows for assets to be held in trust for minors until they reach an age nominated in your Will. However, it can also be used to group the common assets used by the family.  The benefits of testamentary trusts are as follows:

  • Trustees can minimise the overall tax paid on the trust's income by streaming income to beneficiaries with low marginal tax rates.
  • When a Capital Gains Tax asset passes from a legal personal representative of an estate (that is, the executor) to a beneficiary of a will, any capital gain made by the legal personal representative is disregarded.
  • Can be used to protect assets of the estate in the event of a divorce of a beneficiary.
  • Can protect the assets from creditors
  • You can protect the assets of the estate from children with issues such as gambling or drug addiction or remarriage.
  • You can provide for disabled children
  • You ca provide for education of children or grandchildren in a more tax effective way

Preparing a Will

Once your Estate Plan is determined, it’s vital to ensure that your Will reflects this plan.

In the event a valid Will is not in place at the time of your death, your estate will be subject to probate which means your assets will be distributed in accordance with State Laws and will be administered by the office of the Public Trustee.  This can be a long and costly process and will not take into account your wishes, or that of your family left behind.

It is also can be beneficial to ensure an enduring power of attorney is prepared along with your Will, as this allows you to nominate a trusted person to make decisions on your behalf, or carry out your instructions, in the event you become incapacitated and unable to manage your own affairs.

Review of Your Will and Estate Plan

As your circumstances in life change, the family may increase or decrease, or businesses are sold, your Will should be reviewed regularly to ensure that it is reflects your current circumstances. Ideally, it would be best practice to review this at major life events, or every 1-3 years as standard practice.

Communicating your Estate Plan with the Family

We recommend you involve your family in Estate Planning, so they can have some input, and there are no nasty surprises.  It also allows you the opportunity to express your decision making and reasoning.  These discussions can be extremely beneficial and can prevent family conflict when the Will is enacted.

If you would like assistance with reviewing your estate plan, please contact PJT Accountants & Advisors on 07 5413 9300 and we will assist you with this and refer you to trusted legal partners if required.