Shaping your legacy - five mistakes to avoid

Would your assets end up in the right hands if you passed away suddenly?

Steer clear of these common mistakes when planning your estate.

The estate planning needs of high net wealth investors with trust and company structures require more sophisticated and complex estate planning arrangements. A surprisingly high proportion of people lack concrete plans for sharing that wealth with future generations.  As a result, the unintended consequences of poor estate planning often result in poor outcomes for beneficiaries.

Below are five examples of poor estate planning,

1. Not having a valid and up to date Will

You should review your Will regularly to ensure it still accurately reflects your existing circumstances and estate planning goals. As this example illustrates, this is particularly important when your family situation changes.

For example: Bill had a family trust holding significant assets Following his divorce and property settlement with his ex-wife Marlene, Bill failed to change to controller (appointor) position in the family trust deed.

When Bill unexpectedly passed away, Marlene was left in control of the family trust. She used the trust assets for her own benefit and to the detriment of Bill’s wife and child.

2. Not having a wealth transfer strategy

The use of trusts within a Will can protect assets where an expected beneficiary is vulnerable. O

For example: Jack made a Will following the birth of his son, Mark, many years ago. At the time of Jack’s death, Mark, was the director of a trading company.  Mark’s company failed and Mark was made a bankrupt.   When Jack died, Mark’s share of Jack’s estate passed to the Trustee in Bankruptcy.

With proper estate planning, Jack could have created a structure whereby the inheritance receivable by Mark could have been protected from creditors.

3. Over-looking a testamentary trust

A testamentary trust is a trust created within a Will.  Where the beneficiary has young children, the gift of an inheritance via a testamentary trust can provide significant tax advantages.

For example: Rob and Raelene were a professional couple with four young children.   Rob passed away suddenly, and his Will gifted all his estate to Raelene. All assets were held in his name only.  Included in Rob’s estate was the proceeds of a large insurance policy

When Rob’s assets were distributed to his wife, she invested the proceeds of the insurance policy in a diversified portfolio of investment assets and generated annual income of $90,000 from the portfolio.  Because of her other income, Raelene paid tax on the investment earnings of the investment portfolio at the top marginal rate, leaving $49,500 of after-tax income which she used to part-pay the school fees for the children. Had Rob’s Will contained provisions for the establishment of a discretionary testamentary trust, Raelene could have reduced the tax on investment earnings from $40,500 to $3,268, leaving nearly $87,000 to apply for the children’s education expense.

4. Not talking to your family members about your decisions

Discussing sensitive topics like wealth transfer with families, and beneficiaries can be difficult. The benefit of including your family in these conversations from an early stage, however, can help make sure well-meaning wishes are carried through.

For example: A client had established a charitable foundation and was concerned that upon her death the legacy which she had established would be forgotten and come to an end.  By having a conversation with her children, she was relieved to discover that two of her daughters shared her philanthropic passion and arrangements were made to bring the children into the management of the foundation.   If you would like one of your children to get involved in the ongoing management of your philanthropic donations, you need to ensure they are aware of your goals and intentions so they can carry on your legacy as intended.

5. Only looking at some of the picture

An estate plan is not limited to merely having a valid will. Estate planning including making appropriate arrangements for the passing of all your wealth, including non-estate wealth.

For example: Mary was a single parent who wished to benefit her three children equally if she passed away and made a simple Will to this effect.

When Mary died suddenly, her main asset was her superannuation, including a policy of life held within the superannuation account.  Mary did not have a death benefit nomination in place. One of her children was a financially independent adult working as an accountant, while the other two were school aged children living at home.

The trustee of the super fund decided to pay the death benefits to Mary’s deceased estate.   Mary’s Will contained no provisions relating to the treatment of superannuation proceeds.  This meant that a portion of her superannuation death benefit was subject to tax.  This had the effect of reducing the value of her estate.  Mary’s Will did not address the greater financial needs of her school aged children.  This increased the risk of a challenge to her Will by the guardians of her minor children.  The minor children would receive their full entitlement upon attaining 18 years of age, which may not have been appropriate for vulnerable children affected by the premature loss of their sole parent.

At ANZ, we can help

Estate planning can be complex, so it’s important you obtain advice from a competent professional, who practises in this area.

ANZ Private’s estate planning team comprises experienced lawyers who practice solely in estate planning law. Their service includes:

• Analysing your existing personal and financial situation
• Providing you with tailored estate planning advice
• Preparing your Will, enduring medical and financial powers of attorney, assisting you with your superannuation death benefit nominations, and preparing documents associated with the succession of your family trust, and
• Providing you with a complimentary safe custody facility to house your estate planning documents.

ANZ Private specialise in working with business owners on a range of personal and business needs. Learn more about how they could help you here.