Estate planning – Is your house in order?

Most people start with the will itself, however this is only half the story. Although a will is vital, it only comes into force once you die. A Power of Attorney (POA), on the other hand, enables your assets to be dealt with while you are still alive in the event of incapacity or a medical emergency.

Not only are POAs useful for dealing with your family home and other directly held assets, we have also seen them successfully used for family trusts and self managed super funds where the rules surrounding members and trustees are narrow and prescriptive.

There are different types of POAs according to your circumstances and state’s laws. It is important that you consider and prepare these documents while you still have capacity. Your local Accru adviser will be able to assist.

The transfer of wealth from the baby boomer generation to their children will be unprecedented. Gone are the days when mum and dad just had the family home and cash in the bank. It is not uncommon for our clients to have a trust, company and self managed superannuation fund, all of which continue after ones death and need careful consideration to ensure they are effectively transferred in your will.

A constructive estate planning discussion should take into account the following:

  • Asset protection – the protection of your wealth from marriage breakdowns, creditors (your own or that of your beneficiaries) and potential challenges to the estate.
  • Taxation – each structure has its own unique tax implications. The family home, for example, can be sold capital gains tax free, while superannuation, retained profits and other investments carry with them an underlying tax obligation. This needs to be considered and often quantified when dividing up your assets.
  • Testamentary trusts – these discretionary trusts that are established by your will are a critical element for asset protection and tax strategies. They are not for everyone, but you should discuss the pros and cons with your Accru adviser.
  • Superannuation – did you know that in some cases your superannuation may not even form part of your estate? This is the case if you have a binding death nomination or reversionary pension in place. Further, there have been some actual cases (confirmed by the courts) where unscrupulous children have paid a death benefit to themselves and left their siblings with nothing! Who controls your self managed superannuation fund is critical.
  • Executor – a person or people with the necessary skills and acumen is essential as this is a highly responsible and trusted position.
  • Life insurance – in the event of premature death, life insurance is a must. This can be structured in a tax effective manner if written through your superannuation fund.
  • Businesses – if you are in business with others, consideration of a buy/sell agreement is crucial. The last thing a business partner wants is to have to find the cash to buy out the surviving spouse, or find themselves in business with that person.
  • Who owns your wealth – for example is the family home owned as tenants in common or joint tenants between spouses? Each is treated differently by your estate. Also ensure you know your capital gains tax cost basis. If the asset was purchased after 19 September 1985, the cost base is passed onto your estate and beneficiaries.

Effective estate planning is a process of thorough investigation, analysis, discussion, application of strategies and continuous review. If you would like to discuss your estate planning, please contact your local Accru adviser.

About the Author
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Greg Newbury
Greg heads Accru Financial Planning, Accru Felsers high net worth advisory practice. A tax, super and financial planning expert, he writes and speaks on taxation matters affecting the medical profession, superannuation reform and retirement planning in Australia.
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