Estate planning: more than a will
Most people think of estate planning as writing a will. A will matters, but on its own it often doesn’t control the things people assume it does: super, assets in trusts and companies, and what happens if you lose capacity while you’re still alive.
The documents everyone needs
A will
Says who receives the assets you own personally, who your executor is, and who looks after young children. Review it after marriage, divorce, separation, children, grandchildren, or buying or selling major assets. In NSW, marriage generally revokes an existing will and divorce revokes gifts to a former spouse.
An enduring power of attorney
Lets someone you trust make financial and legal decisions for you if you can’t, for example after an accident or with dementia. Without one, your family may need to apply to the tribunal to manage your affairs.
Enduring guardianship
In NSW, a separate document appointing someone to make health, medical and lifestyle decisions for you if you lose capacity, including where you live. Consider an advance care directive setting out your wishes.
What your will doesn’t cover
Super
Super isn’t automatically part of your estate. The fund’s trustee pays it out according to your binding death benefit nomination, if you have a valid one. Otherwise the trustee decides, within the rules. Check that:
- you have a nomination, and it’s binding,
- it hasn’t lapsed (many expire after three years unless they’re non-lapsing), and
- it names people who can legally receive it: your spouse, children, financial dependants, or your estate.
In an SMSF, a reversionary pension can continue to a surviving spouse automatically, and the fund’s deed and succession plan decide who controls the fund after you.
Assets in trusts and companies
A family trust’s assets don’t form part of your estate. Control passes according to the trust deed, usually through the appointor. Company shares do pass through your will, but control of the company depends on the constitution and who the directors are. Business owners need a plan for both, ideally with a buy-sell agreement and insurance if there are other owners.
Jointly owned property
Property owned as joint tenants passes automatically to the surviving owner, outside the will.
Tax on what you leave
- Super: death benefits to a spouse or dependent child are generally tax-free. To independent adult children, the taxable component is taxed at up to 17% including Medicare levy. Strategies such as withdrawing and re-contributing super before death can reduce it, but need careful timing.
- Capital gains tax: generally doesn’t arise on death itself, but beneficiaries inherit the deceased’s cost base. A home sold within two years of death may be fully exempt. See the main residence exemption.
- Testamentary trusts: a trust created by your will. Income distributed to children under 18 from a testamentary trust is taxed at adult rates, which can save a family a lot of tax, and assets can be protected from a beneficiary’s divorce or creditors.
Keep it current
Review your plan every few years and after any major life event: marriage or separation, children, a death in the family, selling a business, or retiring. Make sure your executor and attorneys know where the documents are.
Getting it done properly
Estate planning needs your solicitor, accountant and financial planner working together: the solicitor drafts the documents, we look at trusts, companies, SMSF and tax, and Clarity Wealth’s financial planners review super nominations and insurance. If you have an SMSF, our SMSF service covers the deed and nominations. See also our retirement checklist.