MONEY: estate planning makes good sense
Estate planning is an unappealing but necessary part of life. Here’s how to make this financial task as easy and painless as possible, avoiding a big headache later on.
T hey say nothing is certain but death and taxes yet both are topics we’d rather avoid. So it’s easy to see why we put off estate planning, which involves both. But avoiding this important task can have dire consequences for loved ones left behind. If you don’t leave clear instructions, your family can face hefty delays, or may be denied the wealth and property rightfully theirs. Laura Baker, Senior Financial Planner, Commonwealth Financial Planning, reveals how to make the process as simple and stress-free as possible.
Step 1:
Make your wishes known The starting point for estate planning is thinking about exactly how you want your estate divided and who you would like to appoint as executor. Then be sure to let that person know.
“They could get quite overwhelmed if they aren’t aware,” Laura warns.
Stating your wishes will help avoid disputes and confusion down the track.
“If something does happen to you and you haven’t organised your estate there are excessive wait times,” Laura says.
And estate disputes can incur legal fees. “Your solicitor could be charging for all those hours spent,” Laura adds.
Step 2:
Seek advice
There are websites that offer advice for writing a will without professional help and you can even purchase will kits from the post office. Laura cautions against making this huge financial decision without professional support.
Poorly executed wills can be deemed invalid, she warns. Even little errors like putting the wrong date of birth or incorrect spelling can cause problems.
“The money could all go to the person that they didn’t want it to,” she says.
Simple wills often don’t consider all eventualities. An example is when people think their estate planning is straightforward because they leave everything to their spouse.
“But what if you spouse passes away at the same time?” Laura says.
“You’ve got to remember that because you’re no longer here the executor holds a lot of power. If you’ve got three children and you nominate one of them as the executor, they’ve got power to make very significant changes to your wishes.”
A professional can ensure your will is watertight, and minimise disputes and delays after you’re gone.
Step 3:
Get tax wise
A professional, such as a financial advisor, can also advise on how your estate may be taxed.
A dependant may not incur any tax on their inheritance. However, for a beneficiary who isn’t a dependant the situation is more complicated.
“If you left a house to a family member they may receive that house and not have any issue with it, however if you left them with an insurance policy within superannuation they may actually pay up to 22 per cent tax on that,” Laura says.
Step 4:
Insure yourself
When it comes to making plans for your loved ones and dependants after you die, insurance is a big consideration. There are a few common pitfalls, Laura says. Many people buy too much life insurance, but have no income protection.
“A lot of people don’t consider trauma and income protection when really they’re the ones that are more likely to be claimed on than life and total and permanent disability situation. Make sure you shop around and work out how much cover you need.”
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