Estate planning ensures the safe and smooth transfer of assets following the passing of a loved one.
If we’ve learned anything from the past couple of years, it’s that situations can change quickly, and often that leaves families unprepared, or at the very least without a clear way forward when it comes to passing on our wealth and belongings.
Here we take a closer look at what estate planning is and why it is important.
What is estate planning?
If you didn’t know already – you have an estate. It comprises everything you own in your sole name, like your home, car, investments, savings accounts, you name it. These assets may be beloved items you’ve accumulated over your lifetime, or assets of great value – and ensuring they fall into the right hands after you pass away is essential. A good estate plan helps makes sure this transfer takes place without disputes, challenges, or strife between those you love. It can also assist in making arrangements in advance for how minor children are to be taken care of.
What’s the difference between a will and estate planning?
Many people think that making a will and estate planning are the same thing, but in reality, making a will is only one component of a good estate plan.
A will is a legal document that stipulates exactly who will receive the assets that you own. Estate planning, therefore, includes making a will, but often means going further than this, such as establishing Testamentary Trusts within your will, and the drafting of other documents like inter vivos discretionary Trusts and Powers of Attorney.
For a will to be valid, it must meet the requirements laid out in the Wills Act 1970 (WA).
A will also names a person you trust to execute your wishes on your behalf, called your executor. This is essential to ensure your wishes get carried out exactly as you intended, leaving no room for disagreements, or perhaps worse – in the absence of a will having your assets divided up according to the very prescriptive formula in the Administration Act 1903 (WA), which can have devastating financial consequences for a family. A will can also be an important tool to honour those you love, by handing on keepsakes and precious items to those that you know they would appreciate them.
Why is estate planning so important?
Assets, life insurance, and bank accounts aside, estate planning ensures your family and loved ones are properly taken care of once you’re gone. It allows you the chance to pass on valuable and sentimental items to the right people at the right time.
Without an effective estate plan, there is room for doubt and dispute among family members which can turn what is supposed to be a time of remembrance and gratitude into a legal nightmare. Having a plan in place minimises the time, energy and money spent in retrospectively trying to obtain a workable outcome for the family, and gives you the chance to honour those close to you.
Components of estate planning
As we mentioned before, estate planning is more than just creating a will and filing it away. Estate planning consists of various components that will depend on your family dynamics, your wishes, and of course, the number, variety and structure of financial assets you hold. Apart from an effective will, here are some other key components of estate planning:
A testamentary trust is a trust established in your will upon your death, either for a child, an adult, or sometimes even both. You may set up a trust to protect your assets in the long term (for example, to ensure that assets stay within the family, and are not eaten up by Family Court proceedings following a relationship breakdown of a child, or the bankruptcy of a beneficiary who isn’t the best with money), to ensure tax effectiveness – or to ensure your child gains access at a certain age, or on certain terms. Choosing the right trustee is a critical part of estate planning and should be done with caution.
The beauty of a testamentary trust is that it is completely customisable. It is not uncommon for a testamentary trust to take on aspects of a protective trust (expanded on below), according to the needs of the beneficiaries.
Discretionary and Protective Trusts
True discretionary trusts are just that – discretionary. No beneficiary of a discretionary trust has a fixed entitlement to the assets or income of the trust, and they can be distributed at the sole discretion of the trustee of the trust.
Discretionary trusts are established during your lifetime, as opposed to a Testamentary Trust which is established in your will and only comes into existence upon your death. Many family-owned businesses are set up in a discretionary trust structure, to ensure that control of the trust, and therefore the business, can be easily passed down the family line. Discretionary trusts allow for a large degree of flexibility in how the assets and income of the trust are distributed, which can have tax benefits, especially if the trust generated an income.
Protective trusts exist to cater for family members who may not have the means to sustain themselves financially, or for beneficiaries who are unable to manage their own financial affairs. How the assets and income of a protective trust can be distributed is much more prescriptive than a discretionary trust. This allows you to not only protect vulnerable people close to you through a controlled and sustainable transfer of your wealth, but also protect the assets contained in the trust.
Enduring Powers of Attorney
An enduring power of attorney is a document that appoints someone you trust to act on your behalf in relation to legal and financial matters. It is ‘enduring’ in that it continues to operate even if you lose mental capacity, whereas a general power of attorney (which you might make, for example, for someone to purchase land on your behalf is you are going to be out of the country) will cease to have effect if you lose mental capacity.
Generally, there are two types of an enduring power of attorney- a power of attorney that takes immediate effect and continues if you lose capacity, or one that only takes effect if you lose the capacity to make decisions on your own .
The former is generally the type of enduring power of attorney that is made between spouses – it means a spouse can immediately rely on that document without having to go to the trouble of getting a declaration made by the State Administrative Tribunal that you no longer have capacity. The latter might be made when appointing multiple children, and you only want them to have that decision making power if there has been a declaration that you no longer have capacity.
Enduring Powers of attorney can also have restrictions placed on them, for example, if you want to limit the decision making power to certain assets or types of decisions.
Your attorney will step into your shoes and can act and make legal decisions on your behalf. Establishing a power of attorney is an important step to consider in estate planning and should be made with extreme care.
Enduring Powers of Guardianship
An Enduring Power of Guardianship is similar to an Enduring Power of Attorney, however it relates to decisions regarding your lifestyle and health, such as certain medical treatment options and where you might reside. Unlike an Enduring Power of Attorney, an Enduring Power of Guardianship only comes into effect if you are unable to make those decisions yourself.
Advance Health Directives or ‘Living Will’
Advance health directives are a legal document that gives you the power to make certain decisions regarding your health and medical treatment in advance. If lose capacity and important medical decisions needs to be made, this document is at the top of the hierarchy. Unlike the power of guardianship which hands this decision-making power to someone else, an advance health directive keeps this power in your hands. For someone whose particular religious or cultural beliefs impact the kinds of treatments they can have, or if someone just has strong views on their medical treatment, this is an essential document. The most common type of advance health directive that is made is someone refusing life sustaining treatment in the event they are in a vegetative state.
What is the average cost of estate planning
There is no easy answer to this. While you may find some law firms offering wills and estate planning for anywhere between $300 to many thousands of dollars, due to the complexity of financial sets and family structures, an average cost is often next to impossible to predict. At Solomon Hollett Lawyers, we like to think we do things a bit better than others, and we appreciate that each client is unique, as are their circumstances. In short, the more we can hone in on the detail of your specific requirements, the better your estate planning is going to be.
When is the right time to start planning your estate?
Planning your estate might seem like a distant job that you’ll leave for another year or two. Unfortunately, that mindset is what leaves roughly 40% of Australians currently without a will. The sooner you have these plans in place, the quicker you can have the weight off your shoulders and have some ease of mind knowing that when it comes times to revisit your estate planning if your circumstances change, most of the work is already done. . If you want to learn more about the details, feel free to consult our comprehensive estate planning guide.
Plan your estate with the experts
During uncertain times, and as Western Australia reopens to the world, we anticipate a surge in demand for estate planning and an increase in people searching for ‘wills and estate lawyers near me’. Indeed, it has never been more important to think of those around you.
Solomon Hollett Lawyers take pride in ensuring the secure, smooth and prompt means to transfer your assets to those you love and care for. Our wills and estates lawyers create custom plans to suit your individual needs, whilst ensuring every detail is taken care of. With a highly experienced and competent team, our legal advice and strategies can help you plan your family’s future and ensure your legacy is bright.