Inevitably, as we approach retirement or are already in retirement, we start to think more about family issues. Estate planning is the term that is generally given to planning your family affairs so that in the event of your death, your wishes are both clearly outlined and administered the way you intended them to be. Property and investments which are held as tenants in common will be distributed through your Will.
Appropriate estate planning can allow a person to pass on assets to beneficiaries in a tax effective manner. As part of the planning, it is important to ensure your nominated beneficiaries of superannuation funds and life insurance policies are current. While trustees of superannuation funds are not bound to follow your nominations, they will have regard to them when deciding to whom benefits are to be paid.
Power of attorney
A power of attorney is a legal document that allows another person to act on your behalf. It ensures that important matters are dealt with by someone you trust if you are unable to deal with them yourself. The most common powers of attorney are a general power of attorney and an enduring power of attorney. The main difference between them is that a general power of attorney ceases when you are incapable of acting in a situation yourself, while an enduring power of attorney remains in force until it is revoked or death. Granting of a power of attorney is complex, and there can be serious risks associated with it. Get legal advice on the best type for your needs.
Your Will
One of the key parts of estate planning is your Will. This is the document that sets out who you want your money to go to. If you die without a Will, state laws determine who gets the proceeds of your estate.
When you establish a Will you will also set out who is to be appointed as your executor or executors. This is the person or persons that you are entrusting with the job of looking after your affairs until your estate is distributed to your nominated beneficiaries. The person can be a member of your family, a friend or, for example, your solicitor or accountant.
Testamentary trusts
These are trusts set up under a Will. On death, the trust becomes the owner and manager of all assets that are passed to it through the Will. The trustee has the discretion to distribute income and capital to nominated beneficiaries. The main benefit of testamentary trusts is that income distributions may have tax benefits, and may protect assets from bankruptcy etc.
There are both establishment and administration fees for a trust, and you should consult with legal and financial advisers to determine if this arrangement is appropriate for your situation. There may also be social security implications, and you should talk to a Centrelink FIS Officer to make sure you understand these.
Income streams and your estate
As your retirement income stream entitlements are part of your assets at the time of your death, it is important to consider these benefits as part of your estate planning.
There are different estate planning issues to consider, depending on the income stream selected and whether or not it is purchased with ‘superannuation money’ or other savings. This is one area where a financial planner can be of great assistance.
For more information
There is more information about Wills and powers of attorney in Are You Needing Help After Someone Has Died?—a free booklet available from Centrelink (to get a copy, phone 13 2300). Similar information can be found in NICRI’s free leaflet titled Enduring Power of Attorney (to get a copy, phone (02) 6281 5744, or FREECALL™ 1800 020 110). Veterans’ Affairs also has a similar free booklet called Planning Ahead.