Planning your estate
Planning ahead: estate planning considerations for families, blended families and single parents
It is undeniable that becoming a parent is a major milestone in most people's lives. Taking on the responsibility for children can make you think about what would happen if you weren't around anymore.
Parents need to think about Estate Planning issues if they want some control over how their children will be cared for if the parents are no longer present.
Contemplating death is not a particularly happy subject but it is necessary if you want some control over how your loved ones will be cared for when you die or if you are incapacitated.
There are a number of legal tools that you can use to plan for your future and ensure your assets are effectively managed and passed on to your loved ones.
Some of these tools include:-
- Last Will and Testament
- Life Insurance and Superannuation
- Power of Attorney and Guardianship
- Financial Agreements
Making a Will
A Last Testament and Will is used to specify who your assets will be left to. The people you nominate to receive your assets are called your “beneficiaries”.
Creating a Testamentary Trust in your Will
In simple terms, a trust is an arrangement where one person holds property for the benefit of someone else.
If you have minor children, your Will can be used to establish a trust, whereby your assets are held by a “trustee” on trust for the children until they attain a certain age, which you can nominate. This is referred to as a testamentary trust.
If you do create a trust for the benefit of any minor children, you will need to think carefully about who you appoint as trustee. This person will manage and control the trust assets. You can impose specific rights and obligations on them.
For example, you might want to grant the trustee the discretion to release funds for the benefit of the children at certain intervals or for specific purposes, such as for education, living or travel expenses.
You can also use your will to nominate a guardian to care for any children who are under 18 years of age. The person you nominate as guardian will not be legally bound to accept the role, and you should discuss these arrangements with the intended guardian before finalising your Will.
Think about whether you want to leave funds to your guardian help them accommodate the children and cover their living expenses.
A “living” trust is an arrangement that allows you to hold and control assets during your lifetime, on trust for stated beneficiaries.
You can name any beneficiaries you like and set out rules dealing with the trust assets and how they are to be handled – the options are endless and can be manipulated to optimise the effectiveness of your estate plan.
You can stipulate any “rules” you like. For example, you can stipulate that the whole trust amount will be transferred to the beneficiaries when they reach a certain age. Or you may prefer to progressively release funds at stipulated intervals or purposes.
Alternatively, a discretionary trust will give the trustee the discretion to release trust funds, as and when it sees fit, and may be ideal for use in a “mum and dad” estate planning arrangement.
Superannuation and life insurance proceeds
When dealing with life insurance proceeds and superannuation funds you may opt to:-
- Notify the super fund and life insurance company of your nominated beneficiaries directly, by completing and lodging the necessary forms with them. If you have designated beneficiaries, then your superannuation and life insurance proceeds will be distributed directly to your nominated beneficiaries on your death, outside of your Will;
- Not designate beneficiaries, in which case your super and life insurance will form a part of your estate, and be distributed in accordance with your Will. This might be helpful if you have minor children, in which case the proceeds could form part of the assets of a testamentary trust under your Will, in which you nominate a trusted person to control and manage the funds as trustee until the children reach a specified age. Or the proceeds may be used to payout any mortgages remaining over real estate at your death.
Special considerations for families, blended families and single parents
A common arrangement between spouse partners is to leave their assets to the surviving partner. It would then be up to the surviving partner to ensure the estate is passed on to the children.
However, these days a growing number of parents want to make ensure their estate will be passed on to their children. This is particularly pertinent for those in blended families, in a partnership with existing children from a previous relationship, or single parent families.
In these situations, you will need to give consideration to issues such as:-
- Guardianship – who will you nominate as guardian for any minor children;
- Life tenancy – will you grant your partner the right to reside in the residence for a certain number of years, or until their death, before the residence is ultimately passed on to any children. This will be a consideration if you own the family home or a share in the family home with your partner.
Such provisions can be incorporated into your Will.
Quarantining assets from a claim by your de facto or marriage partner
Under Australian law, married or de facto partners may apply to the Court for a share of the other partners’ assets. The court can, in its’ discretion, make “financial orders”, giving one partner a share of the other partners’ assets based on various considerations.
Binding Financial Agreements are an option available to parties in a relationship to quarantine their assets from possible claim by their partner in the future. They allow each party to assert their rights to the assets and liabilities which are theirs, and each party agrees not to make a claim on the assets of the other in the court at a later date.
This gives those in a relationship an added layer of certainty that their assets will not be the subject to a claim under family law by their spouse or de facto partner and will be ultimately passed on to their children.
This is particularly relevant for those who are in second relationships and who have children from previous relationships, or those who have blended families.
It is important to understand that a binding financial agreement is not a Will – but it can be used in conjunction with a Will, a trust or other estate planning options.
Power of attorney and enduring guardianship
A considered estate planning approach will incorporate the appointment of trusted person to act on your behalf if you are unable to, in relation to financial matters and medical/lifestyle matters. These are each dealt with separately by way of a Enduring Power of Attorney and Enduring Guardianship.
You can appoint someone to act on your behalf in relation to your financial matters, by way of an enduring power of attorney. An enduring power of attorney is used to appoint a trusted friend or family member to act on your behalf in relation to financial matters, only if you become unable to do so yourself. You can access the relevant Enduring Power of Attorney forms, here.
You can appoint someone to act on your behalf in relation to medical and lifestyle decisions, by appointing an Enduring Guardian. You can access the relevant Enduring Guardianship forms, here.
Ultimately your estate plan will depend on your own unique circumstances. There will likely be particular taxation implications and family considerations which will help you determine the best, most effective and safest strategy for your situation.
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By Ian MacLeod