How do you ensure your will is set up properly?

By November 3, 2020 Financial Planning
will

Most people acknowledge that a will is an important document to create, but we all hope there’s no urgency to prepare it. As such, many people rarely ‘get around’ to it.

One of the reasons for this is they don’t know enough about it and how to get started. This blog answers commonly asked questions and matters that should be considered when drafting estate planning documents.

Rules are State based

The laws that govern the administration of wills and intestacy (if you die without a will) is the State’s jurisdiction. This means rules may vary from state to state.

Generally, if you die without a will, it is referred to as dying intestate. There are many adverse consequences of this including your assets being distributed in a way that you would not otherwise agree with. In addition, it creates unnecessary work and complexity for surviving family members to arrange probate.

Simple circumstances requires a simple will

If your situation is simple, you only need a simple will. Simple means that you do not have significant assets, you do not have any specific beneficiaries or financial dependents. In this situation, typically, a template will should be satisfactory. You can purchase these online for approximately $200. Make sure your will is witnessed correctly.

However, the more assets you have (in terms of value), the greater the need for personalised legal advice. Like in many situations, often it’s what you don’t know that could cause problems.

Kids complicate matters

If you have children (or are contemplating having children), you should engage a lawyer to draft your will. Not only do you need to ensure that all financial dependents will be looked after, but you must address guardianship of your children. In the event that you and your spouse[1] pass away, who will be the legal guardian of your children? This is an important decision which must be included in your will.  

I would typically advise people with children to insert a testamentary trust into their will. A testamentary trust is a special discretionary trust that is created upon death. The will maker can permit the executor to transfer the estate assets into the testamentary trust. Testamentary trust’s provide serval advantages including taxation savings (discussed below) and asset protection benefits.

Blended families complicate matters further

A blended family includes situations such as:

  • both spouses have children from a previous relationship; and/or
  • one spouse has children from a previous relationship as well as children with their current spouse.

Blended family arrangements can create a myriad of potential risks that must be considered and addressed when drafting estate planning documents. Anyone in this situation must seek personalised legal advice from an experienced estate planning lawyer.

Beneficiaries with special needs

If you have beneficiaries or financial dependants with special needs such as a child with a disability, battling addiction, mental health or similar issues, it is very important that you receive personalised legal advice.

Ways to minimise the likelihood of family conflict  

Money and grief do not mix well. Otherwise healthy family relationships can turn sour when money is involved. But there are some steps you can take to minimise the chance of your family members fighting over your estate.

Have difficult conversations

You invite conflict if your wishes surprise your beneficiaries. The best thing to do to avoid this is be brave and have (sometimes difficult) conversations so that everyone knows your wishes before you pass away. For example, if you intend to exclude someone that may expect to be a beneficiary, distribute your estate unevenly or leave specific assets to certain people, be as open as you can about this.

Use offset clauses in your will

If one of your beneficiaries (often children) has received a higher level of financial support or an early inheritance, then offset clauses can equalise entitlements across all beneficiaries, if that is your wish.

An offset clause will say something to the effect that any support already received by a beneficiary will reduce their entitlement. It is important to maintain clear records that are readily available to your executors. If possible, making all beneficiaries aware that any financial support you provide whilst you are alive will reduce their entitlement under your will is helpful.

Keep assets out of your estate

Your will covers the assets in your estate. Typically, that includes any assets owned by you personally. Assets that are not included in your estate include:

  • assets held in a discretionary family trust that you are not presently entitled to;
  • monies held in superannuation; and
  • assets owned jointly with other parties e.g. the family home. When a joint owner passes, ownership automatically passes to any surviving joint owners.

Therefore, if you are worried that your will could be challenged or could create family conflict, the best thing to do is minimise assets that are owned by you personally.

Make gifts while you are alive

Gifting monies or assets whilst you are alive is one way to avoid any potential conflicts. This also provides some practical benefits. Firstly, it’s likely that receiving monies sooner often assists your beneficiaries. Secondly, you will enjoy witnessing the positive outcomes that these gifts create.   

Superannuation death benefit nominations

Superannuation monies are not included in your estate. Instead, the trustee of your super fund must decide who to pay your superannuation monies to. As such, most super funds allow members to complete “binding death benefit nominations”. Often these nominations must be updated every 3 years.

Your nomination options include your spouse, children, interdependent relationships (i.e. where you provide financial and domestic support) or your estate. In most circumstances, it is advisable to nominate a financial dependant/s (spouse and/or children), as this will ensure the benefit payment will not be taxed.

Steps you can take if you expect to receive an inheritance

If one of my clients is to receive an inheritance, it would be my preference that they receive this in a testamentary trust.

The main benefit is that a testamentary trust can distribute income and capital gains to a minor and they are taxed at adult tax rates. This means children and grandchildren under the age of 18 can receive approximately $20,000 p.a. tax free.

Therefore, if you expect to be included as a beneficiary under a will, it is in your best interest to ensure the testator (e.g. your parents or family member) has included a testamentary trust in their will. I appreciate that this can sometimes be a difficult subject to discuss with family.  

Flexible will plus a letter of wishes 

It is advantageous that wills provide wide powers so that your executor is able to achieve the outcomes that you desire. For example, if one of my sons becomes addicted to gambling or drugs, I don’t want my executor giving them large sums of money. That is why you don’t want to be too codified in your will.

Instead, I prefer to keep my will such that the executor/s has wide powers as well as providing my executor with a letter of wishes. A letter of wishes is a non-binding document that sets out the manner in which you wish your executor to exercise their discretion. It can include any and all information that you feel is relevant. It might address the circumstances when, and when not to, distribute monies and any other matters. You don’t need a lawyer to draft a letter of wishes. You can draft it yourself and update it at any stage.

Power of attorney

It is important that you and your spouse have enduring (1) financial and (2) medical power of attorney’s so that important decisions can be made, and documents executed, in the event that you are not available or able to do so for yourself.

Review your will regularly

A will must be prepared to accommodate your current circumstances and wishes. It is not always possible to draft a will that will accommodate all possible circumstances. For example, if you have young children your will might be structured differently than if you had well-established, adult children. Therefore, you need to review your will every 1-2 years to ensure its still current and the executors are still appropriate.

Most potential problems can be avoided with good planning and advice

Making sure that your estate planning documents are set up correctly really doesn’t take a lot of time. Also, it would be unlikely that you would need to make any substantial changes to them more often than every 10 years or so. Often it doesn’t need to be complex. A small amount of time invested in making sure your affairs are in order can save your family members a lot of heartache.


[1] When I refer to a spouse, I am referring to a life partner which includes matrimonial and de facto relationships.