Tag Archives: Estate Planning

All about Wills and Probate

By Robert Wright /May 25,2022/

Probate is the legal process that occurs when dealing with a loved one’s will after their death. It can be difficult to know what’s involved with the process and the questions to ask.

What is Probate?

Probate is the process that makes sure the instructions in a will can be followed. It involves proving and registering a will in the Supreme Court and, if successful, will result in a ‘grant of probate’.

What’s a grant of probate?

A grant of probate means the will is recognised as legally valid and enables the executor (the person dealing with the estate) to distribute assets to the beneficiaries named in the will. Most financial institutions require a grant of probate before they can release accounts and funds to anyone other than account holders.

What to do if a family member passes

When a family member passes away, if you’re the next of kin then you need to determine whether they made a will. If they haven’t, they are said to have died “intestate”.

In this situation, an application needs to be made to the court for “Letters of Administration” authorising a person to distribute the assets of the deceased family member’s estate, the law will set out how their estate can be distributed, if not, there’s no guarantee that your loved one’s wishes will be honoured.

What’s a will?

A will is a legal document that outlines what happens to a person’s possessions and assets when they die. However, a will isn’t legally binding on its own — there are steps that must be taken to make sure the will is valid, just as there are steps that family members can take if they want to contest the will.

At its most basic a will must be:

• in writing
• signed by the will maker
• witnessed by at least two adults (a beneficiary should not witness a will. If they do, they may lose their entitlements under that will)
• made by someone of testamentary capacity.

Ensuring a will is properly made and signed can be very complex and it is always a good idea to ensure a lawyer is involved.

What’s testamentary capacity?

Testamentary capacity means that someone’s in a fit state of mind to legally understand what they’re doing. If these things are all done, then the will can be used to help divide up the estate.

Life Insurance and probate

Provided you have a named beneficiary with your policy, your life insurance should be easily accessed by your loved ones when the time comes. Life Insurance should be paid directly to the beneficiary and avoid having to be distributed through the deceased’s will.

Having your life insurance beneficiaries up to date can help ensure your loved ones are taken care of financially if something were to happen to you.

What happens once probate or the court process are completed?

Once the court process, or probate, is completed and settled, there is then the process of the administration of an estate by the executor or administrator, after the grant of probate or letters of administration have been provided.

This process of administration is something that needs to happen when a family member passes away. This process starts when probate or letters of administration are granted, and finishes when the assets listed in the will are formally handed over to the executors of the estate and distributed.

An estate can be made up of many things, including:

• Real estate
• Shares
• Loans
• Income or capital allocated by the will maker
• Cash investments
• Personal property

But doesn’t usually include these items:

• Jointly owned assets that are held as joint tenants – e.g. family home (If the owners are tenants in common, the deceased person’s portion can become part of the estate)
• Super pensions or annuities (except when directed by the member to be paid to the estate)
• Life Insurance where the benefit is paid directly to one or more nominated beneficiaries

Here’s what you need to get started with probate:

• The current and original will
• Original death certificate from the relevant state registry
• The probate application
• Income or capital allocated by the will maker; and/or
• Lodgement fee

Probate runs through the court system in each state, and executors or administrators of the estate need to swear to the court that they’ll distribute the will as instructed. It is important to consider getting a lawyer who can help you with the probate process.

What happens if someone contests a will?

If a family member wants to contest a will because they feel that it isn’t fair or feel that something has been left out, they need to do it in the probate stage. If someone challenges the will then the court will hold off on granting probate until the contest is sorted.

As the law in this area is very complex and can be different depending on where you live, when dealing with a will and estate planning it is always recommended to talk to a lawyer to make sure that the whole process is managed correctly, and the deceased’s wishes are most likely to be fulfilled.

They can guide you through the process, ask questions you may not have considered, and recommend arrangements for a range of scenarios. They can help you prepare your own will, or manage the affairs of a family member.

It also ensures you are getting the right advice from a professional. Being prepared can really save you time and headaches down the line.

Source: TAL

What you should know about creating your will and estate plan

By Robert Wright /February 18,2022/

If you want to protect your family and assets, it’s worth documenting what you’d like to happen if you can’t make your own decisions later in life or if you pass away.

If you’ve got people in your life who you love and assets you’d like to be distributed in a certain way, you might be at a point where you’re thinking an estate plan would probably make good sense.

What is an estate plan? 

An estate plan involves drawing up a will, but also much more. It involves formalising how you want to be looked after (medically and financially) if you’re unable to make your own decisions later in life, as well as documenting how you want your assets to be protected while you’re alive and distributed after you pass away.

How does an estate plan help?

You can make your wishes known

One of the benefits of a solid estate plan is you can formalise your wishes in writing. This can help if someone challenges what you said you wanted after you pass away, or if you’re unable to speak for yourself.

You could minimise disagreements

Unfortunately, disputes can happen when assets need to be distributed among people when no clear guidelines have been set.

Being prepared with an estate plan could go a long way in preventing such disagreements should family members need to divide assets among themselves or make other hard decisions on your behalf.

You may improve tax consequences for your heirs

As the distribution of assets (including your income) can come with different tax obligations, a good estate plan could minimise any tax that your heirs may need to pay.

If they decide to sell something they’ve inherited, for instance, they may need to pay capital gains tax depending on what type of asset it is. 

Considerations when creating an estate plan

Do you want your will to be legally binding?

A solicitor or estate planning lawyer can help you draw up a will that is legally binding and covers what you’d like to happen with your assets, children (if you have any) and funeral when you pass away.

It’s important this document is kept up to date and that any changes to your situation (marriage, divorce, separation or otherwise) are accounted for, so those who matter most are taken care of.

While it’s also possible to draw up your own will (there are various kits available online), these may not be adequate in complex situations, which is why engaging an estate planning professional, even if you think your situation is relatively simple, will generally be worthwhile.

Keep in mind, if your will is deemed invalid, your estate will be distributed according to the law in your state, which may not align with your wishes, and claims could be made by unintended recipients. 

Who are your nominated super and insurance beneficiaries?

You might assume that how and in what proportions you want your super to be distributed can be included in your will, but this isn’t necessarily the case.

You’ll need to nominate your beneficiaries with your super fund and you’ll also want to make sure you’re across how long different nominations are valid for.

If you don’t make a nomination, the super fund trustee could use their discretion to determine who your super money goes to.

Meanwhile, if you have insurance outside of super, you’ll also want to make sure you’ve listed your beneficiaries on your insurance policy and that those beneficiaries are also kept up to date.

Will you appoint an enduring power of attorney to make decisions if you can’t?

There may come a time when you’re unable to make legal or financial decisions on your own because of advanced age or medical issues. Granting power of attorney means you assign someone to make these decisions on your behalf should a situation like this arise.

For this reason, it’s important to choose someone you trust, as they’ll be responsible for looking after your bank accounts, ongoing bills, and even selling your house if you need to move into a care facility.

It’s also worth noting that you may be able to appoint a different type of power of attorney depending on what tasks you’d like this person to carry out on your behalf. For example, you may want your son or daughter to make general lifestyle decisions for you, while you appoint a financial adviser to make financial decisions.

Have you chosen an executor to help carry out your wishes when you’re gone?

Generally, an executor is the person legally in charge of managing and distributing your estate, according to the terms set out in your will, with the assistance of a solicitor.

When you nominate an executor in your will, which your solicitor should also have a copy of, it’s important to let your family know, to avoid disputes after you pass away.

The executor should also have a good understanding of their duties and where your will and other important documents are kept. You may also want to let your family know where this information is stored.

The executor will typically be responsible for things like making funeral arrangements, ensuring your debts are paid and bank accounts closed, and collecting any life insurance.

They’ll also usually need to apply to the court for a grant of probate, which is a legal step that’s required before your estate can be distributed. A grant of probate certifies that your will is valid.

Do you need help with your estate plan?

Estate planning can be a complex process and there could be legal and tax implications if you don’t set things up correctly and understand the fine print.

For these reasons, it’s important to speak to a legal professional and your financial adviser before making any decisions and signing on any dotted lines.

Source: AMP

How does your pension live on after you die?

By Robert Wright /February 18,2022/

Account-based pensions offer a flexible and tax-effective method of drawing a regular income stream from superannuation. They are an essential part of your overall retirement strategy and are usually used from retirement until death. But what happens to your tax-free account-based pension when you do die?

Superannuation does not automatically form part of your Will unless a Death Benefit Nomination is completed to that effect. In this article we examine the nomination of an individual beneficiary, where the nomination of a member’s estate and a reversionary beneficiary nomination is not in place.

What are your beneficiary’s options?

The short answer is it depends. To receive your account-based pension your nominated beneficiary may have two options:

1. Commencing a death benefit pension; or
2. Receiving a lump-sum payment.

Both options are subject to additional eligibility criteria. Let’s briefly explore both options with our focus being option 1, commencing a death benefit pension.

Option 1: Commencing a death benefit pension

Features of a death benefit pension

A death benefit pension can basically be considered as allowing your account-based pension to live on after you die, for the benefit of your eligible beneficiary. Features of this pension are much the same as those for an account-based pension. Arguably, the most attractive feature is the tax-free nature in which the assets will reside. Recipients are required to receive a minimum cash pension payment each year which is based on their age and pension balance as at the previous 30 June.

Death benefit pensions can also be rolled into another fund at any time, however, they retain their identity as a death benefit. Therefore, a death benefit pension cannot be combined with other pensions or rolled back to the accumulation phase.

Is your nominated beneficiary eligible?

Generally, only your spouse is eligible. Adult children and your legal personal representative (your estate) would have to receive the benefit as a lump-sum withdrawal, i.e., the assets are removed from the superannuation environment and subject to tax on the taxable component. A dependent child (or children) may also receive a death benefit pension in limited circumstances; if they are under age 18; under age 25 and financially dependent on you; or have a prescribed disability.

Transfer Balance Cap

Another important matter to consider is your eligible beneficiary’s Transfer Balance Cap (TBC). To reiterate, the TBC is a lifetime limit on the total amount of funds that can enter the tax-free pension phase, currently at $1.7 million. Where your beneficiary has already commenced an account-based pension and does not have a sufficient remaining TBC to receive the death benefit pension, they may roll back their existing account-based pension into the accumulation phase to create room for the death benefit pension.

Option 2: Receiving a lump-sum payment

The alternative is to receive the amount as a lump-sum payment. With this option, the funds exit the superannuation environment. The benefits may be cashed as either in-specie or cash depending on your fund’s governing rules.

Conclusion

The death benefit pension option presents an opportunity for your eligible beneficiary to maximise the total amount of funds held within superannuation. While there are limitations on who can exercise this option and matters complicated by TBC, it is still worth considering as the assets will reside in a concessional tax environment.

Source: Bell Potter

Supporting your kids, without sacrificing your own retirement

By Robert Wright /July 30,2021/

In the past, wealth was often passed on through an inheritance. But with our longer lifespans, and the higher cost of living (especially housing), the desire to help our kids while we’re alive and well is increasing.

If your children are young, you may have twenty or thirty years to save and invest on their behalf, while also saving for your own retirement. If this is the case, it pays to put a strategy in place early on.

For those nearing retirement age, or already retired, you may have a large lump sum you’d like to gift to one or more of your kids. Giving money is a wonderful thing to do, but it’s not always simple. It can have tax implications, and may affect your income support payments from Centrelink. On the other hand, gifting may enable you to increase your government pension payments or benefits, if done right.

So how can you help your children without compromising your own financial security and comfort in retirement?

Ensure you’re on track for a comfortable retirement

Before you give away your wealth, it’s important to remember that you need to fund your own retirement for many years.

Australians are living longer than ever, with more years spent in retirement. If you were to retire at age 60, and live to 90, that’s one whole third of your lifetime spent in retirement.

As well as wanting to enjoy your retirement through travel or leisure activities, older age often comes with more medical and health expenses.

So it’s really important to make sure you have enough funds saved and invested to get you through. This might sound selfish, but in reality, it means you won’t become a financial burden on your children later in life.

How much will you need to retire, and, how much can you afford to give away now? It’s always best to seek professional financial advice to ensure you have enough put away to see you through. A financial planner will be able to give you tailored advice about the impact of your giving on your retirement plans.

What am I giving money for?

Next, consider what it is you’d like to help your son or daughter with. Are the funds for a property deposit? To pay for a wedding? Education expenses? This might offer some clue as to the right amount of support.

Following on from this, consider how many children you need to help. If you gift funds to one child, do you need to match that for others when the time comes? If you have several children, but some are doing better than others, do you need to help them all equally?

Balancing the family dynamics around money is important, as it can be a sensitive issue. The last thing you want to do is cause a rift in the family over some perceived inequality. If you do have several children you need to help, keep this in mind, as it will limit how much help you can offer each child.

Giving an incentive

Often the best way to support children financially is to match their own contribution. Rather than purchasing something outright, offer to base your assistance on their own savings. This also means they have a vested interest in the item, which means they’re likely to treat it more carefully.

How should I give money?

If you receive the Age Pension or other benefits from Centrelink, there is a limit to how much you can give away. The gifting rules allow you to give $10,000 over one financial year, or $30,000 over five years. You’ll need to let Centrelink know when you’re planning to give a gift of this type.

If you’re considering giving your children a substantial amount of money, it’s worth taking the advice of Dr Brett Davies at Legal Consolidated. He recommends always giving funds as a loan ‘payable on demand’, not as a gift. Creating a written loan agreement helps keep the money in your family, even if things don’t go to plan.

Consider this. You gift your daughter $400,000 to buy a house. Five years later, she divorces from her husband and the house is the only asset of the marriage. The Family Court awards half of the value of the house to the husband, including $200,000 of your donated funds.

If you instead had a valid loan agreement in place, the loan must be paid out before the assets are distributed. Hence, the $400,000 comes back to you, to do with as you please. 

Always seek professional legal advice when drawing up a loan agreement to ensure that it’s compliant with the law, properly worded and correctly executed.

Get professional advice

If you’re nearing retirement and looking to give up work, downsize your home and/or gift funds to your children, it’s important to seek financial advice.

A financial planning professional will be able to give you tailored advice about the impact of your planned giving. They can also help you work out a strategy for meeting multiple goals, such as giving to several children while funding your own comfortable retirement.

Source: Money & Life