Common Misconceptions About Estate Planning

An estate plan involves more than signing a Will and leaving it in a safe place.

A comprehensive Western Australian estate plan requires consideration of several matters and ongoing review to ensure it reflects your testamentary wishes and covers unexpected events.

In this article, we look at some misconceptions about Wills and estate planning in WA and dispel some common myths. The information is general only, and you should obtain professional advice specific to your circumstances before you undertake any course of action.

"I have a Will – isn't that an 'estate plan'?"

A Will is a great start to planning your estate. However, a Will alone does not appoint a trusted person to look after your financial and property affairs when you are away or incapacitated.

Likewise, a Will cannot appoint a guardian to make health and lifestyle choices on your behalf if you are incapacitated, taking into consideration your morals and values.

Tip: Several legal documents form part of your comprehensive Western Australian estate plan. Think about what you would do if the unforeseen happened and you could no longer manage your affairs. Talk to your lawyer about the benefits of appointing an attorney or guardian to assist you if you are incapacitated.

"My spouse will automatically be able to manage my affairs if I lose capacity."

This is one of the most common misconceptions. Many people incorrectly assume their partner will have automatic authority to manage their financial affairs or make medical decisions if they become incapacitated.

In Western Australia, without an Enduring Power of Attorney (EPA) and Enduring Power of Guardianship (EPG), your spouse has no automatic right to manage your affairs, and the State Administrative Tribunal may need to appoint an administrator or guardian.

Tip: Prepare and execute an Enduring Power of Attorney for financial matters and an Enduring Power of Guardianship for personal, lifestyle and medical decisions in WA. These documents are essential companions to your Will and ensure your chosen person can legally act on your behalf.

"Estate planning is only needed for the elderly or wealthy."

This is certainly not the case.

No matter what your financial status or age, a proper estate plan enables you to appoint a trusted person to administer your assets when you die and ensure your hard-earned property is left to beneficiaries chosen by you and not others. A well-structured estate plan also helps you maximise the gifts and benefits you leave to your loved ones through appropriate taxation planning.

A comprehensive estate plan also helps you prepare for unexpected crisis (illness and incapacity) by appointing somebody you trust to deal with your affairs when you cannot.

Tip: Consider your current assets and the future assets in your Western Australian estate plan – they soon add up. Consider who you would like to benefit from your estate and how you can maximise the value of your assets for your beneficiaries. Estate planning is particularly important for young families in WA to ensure guardianship arrangements for minor children.

"A Will covers all my assets."

Many clients don't understand that certain assets may not be controlled by their Will. Non-estate assets typically include jointly held property, superannuation, assets held in family trusts or companies, and life insurance policies with nominated beneficiaries. These assets pass outside your Will according to their own succession rules.

Tip: Create an asset register identifying which assets will form part of your estate and which will pass outside your Western Australian Will. This will help ensure your estate plan comprehensively addresses all your assets and avoids unintended consequences.

"I can leave joint property to whomever I wish."

The right of survivorship in joint tenancy means that upon the death of an owner of a jointly held asset that asset automatically vests in the surviving owner/s, despite any contrary intention expressed in a Will.

Jointly held assets such as real estate often comprise the bulk of the estate's value. This may be ideal for spouses and de facto partners as many would simply wish the surviving partner to benefit.

However, joint ownership may not be appropriate for estate planning purposes such as property held with certain other family members, non-family members or other entities, or property that remains jointly held after divorce or separation. Joint tenants ownership is often not ideal for blended families in Western Australia.

Tip: Review your assets (real estate, bank accounts, investments) and check how they are held for estate planning. Your lawyer can assist in this process and if necessary, sever joint tenancies so that your share of property can be separately held and left to whomever you wish.

"My superannuation will automatically form part of my estate."

This remains one of the most widespread misunderstandings.

Many clients don't appreciate that superannuation death benefits sits outside their estate unless specifically directed otherwise.

Superannuation death benefits, comprising a member's superannuation account balance and any life insurance payments held for their benefit in their superannuation fund, can only be paid directly to a 'dependant' (as defined by superannuation legislation), as determined by the fund trustee or in accordance with a valid Binding Death Benefit Nomination (BDBN).

Your BDBN can nominate that your Superannuation Death Benefits be paid to your Legal Personal Representative tofollow the terms of and distribution described in your Will.

Tip: Review your superannuation nominations to determine whether you have in place a valid and current BDBN for your Western Australian estate plan. Talk to your lawyer about the formalities required to execute a BDBN and strategies to minimise adverse tax implications on the payment of your death benefits to your intended beneficiaries.

"Testamentary trusts are only for wealthy people."

Testamentary trusts in Western Australia can provide significant tax advantages and asset protection benefits for beneficiaries of even modest estates.

They are particularly valuable when there are minor children, vulnerable beneficiaries, concerns about a beneficiary's relationship breakdown, or creditor issues. Income generated from testamentary trust assets can be distributed in a tax-effective manner, with minors taxed at adult rates rather than penalty rates.

Tip: Discuss testamentary trust options with your Western Australian lawyer, even if you consider your estate to be of modest value. The long-term tax savings and protection benefits may significantly outweigh the initial setup costs.

"My overseas assets will be covered by my Australian Will."

Assets in foreign jurisdictions may require separate estate planning documents that comply with local succession laws.

Different countries have varying rules around inheritance, forced heirship provisions and estate taxation. Your Western Australian Will may not be recognised or may create complications when dealing with overseas assets.

Tip: If you own assets in other countries, seek advice from lawyers qualified in those jurisdictions to ensure your international estate planning is coordinated with your Western Australian arrangements.

"Once I have a Will, I don't need to review it."

Many clients "set and forget" their estate planning documents, not realising how changes in relationships, assets or legislation can impact their effectiveness. Marriage automatically revokes a Will in Western Australia (unless made in contemplation of that marriage). Divorce also automatically revokes a Will in Western Australia (unless made in contemplation of that divorce). Changes in asset values, new acquisitions or disposals of specifically gifted items can all affect how your estate plan operates.

Tip: Flagging to review your Will each year, for example when your annual tax return is prepared, makes good sense. In many cases, no changes will be needed but it is good practice to make a habit of a regular review.

This simply involves reading your will and ensuring it is still current. If you separate, divorce or your financial or personal circumstances change significantly contact your lawyer immediately to see how these changes impact your existing Will and, where necessary, prepare a new Will.

"If I die without a Will my assets go to the Government."

If you die intestate in Western Australia your assets are distributed according to pre-determined formulae set by legislation in each state and territory.

The rules attempt to reflect society's 'expectations' as to who should benefit from a person's estate. They provide a specific order of distribution to the deceased person's next of kin.

The problem with these intestacy rules in Western Australia is that they do not necessarily consider the wishes of a deceased person nor their unique circumstances.

Tip: Don't rely on Western Australian intestacy laws (the government will) to determine those entitled to benefit from your estate. Although only in the most extreme cases will the Crown have a right to an intestate's estate, a Will is essential to nominate with clarity your executor and chosen beneficiaries.

Conclusion

Effective estate planning takes time and careful consideration. A comprehensive estate plan should include a Will, Enduring Powers of Attorney, Enduring Powers of Guardianship, and possibly testamentary trusts and superannuation death benefit nominations. Regular review is essential to ensure your plan remains current with your circumstances and legislative changes.

If you or someone you know wants more information or needs help or advice on estate planning in Western Australia, please contact us on 0421 145 637 or email val@crystallawyers.com.au