What is an estate plan? 

An estate plan formalises how you want to be cared for (medically and financially) if something happens to you, or if you are unable to make your own decisions later in life. It clarifies how you want your assets protected during your lifetime and then distributed after your death, and can ensure your loved ones are cared for after you have passed on. An estate plan also helps to minimise probate and taxes upon the transfer of your assets in a legal and logical manner. Overall the goal of setting up an estate plan is to ensure peace of mind and eliminate potential confusion and disputes. Most estate plans are established with the help of a lawyer experienced in estate law.

What’s the difference between a will and an estate plan?

Many people think a will and an estate plan are interchangeable terms but they are not. A will is part of – and often the first step in – an estate plan, which is far more comprehensive. The estate plan typically covers all assets, some of which may not be covered by the will. It can also become active before you die (i.e. if you are mentally or physically incapacitated), whereas a will only becomes active after death.

What is probate and when is it required?

Probate is a legal process to validate a deceased person’s will and allow their wishes to be carried out by the executor named in the will. If awarded, a ‘grant of probate’ is the court’s official recognition of the validity of the will and the executor responsible. Probate may be required when a person has passed away and leaves behind certain kinds of assets. For example, if there is money in a bank account and the deceased was the sole account holder, the financial institution may ask for a grant of probate before they will release the funds to the executor. This is generally only required if the money is above a certain amount. Each financial institution typically has its own policy regarding deceased estates, so it’s a good idea to check this.

What’s included in a will?

A will is a legal document that sets out how a person’s assets (house, car, cash, investments etc) should be distributed after they die. It can also cover some areas such as nominated guardians for children, as well as funeral and burial wishes. A will can also determine the timing of inheritances (by use of trust structures), as well as donations to charities. When writing a will, a person is generally required to appoint at least one executor, to ensure their wishes are enacted.

What’s an executor of a will and what do they do?

An executor of a will is the person nominated to take care of a deceased person’s estate after they pass away. Being an executor can feel overwhelming, but it doesn’t need to be. The main role of an executor is to represent the person who has passed away and wrap up all of their personal, financial and legal affairs. Ideally, the deceased will have explained how they’d like you to carry out your duties in their will. Typically, people choose their partner, a relative, or a close friend of the family to be their executor. Others opt for a more neutral, professional party – such as a lawyer or accountant – to minimise the risk of arguments.

What doesn’t go in a will?

If a person holds assets jointly with someone else (for example, a joint bank account or a joint home), those assets will typically pass automatically to the co-owner rather than getting distributed through a will. Superannuation is not automatically part of an estate, either. This can be significant if a person holds life insurance through their super fund. ​​Most individual life insurance policies also do not go through a will. Generally, the relevant trust deed (rules stating how the trust works) for any trust that a person may be a member of typically outlines how ownership will be transferred.

What are the 5 key steps in an estate plan?

1. Make a will and keep it up to date, including property, guardianship, and executor details.
2. Nominate beneficiaries for your life insurance and superannuation.
3. Outline a medical treatment/advance care plan – including a decision-maker – and set up an advance care directive, in case of mental and or physical incapacity.
4. Understand the tax consequences of how your assets are distributed and look into how to eliminate or minimise them.
5. Appoint an Enduring Power of Attorney (to make decisions if you can’t).

What’s an advance care directive?

In a crisis, your loved ones may find it difficult to decide what treatment is best for you, if you can’t tell them. Sometimes called a living will, an advance care directive is a formal version of your advance care plan, and outlines your preferences for your future care/treatment – along with your beliefs, values and goals. Having an advance care directive means you can also appoint a (substitute) decision-maker for when you can’t make decisions yourself. It’s important to note that advance care directives differ between Australian states and territories.

What’s an Enduring Power of Attorney and what do they do?

An enduring power of attorney allows you to appoint someone you trust (who is an attorney) to make decisions about personal (including health) and/or financial matters for you. To make someone an enduring power of attorney, you must have the capacity to understand the document you are signing and the powers it gives. To verify this, the document must be signed by you in the presence of an eligible witness. Following this, your attorney can only make decisions for you on personal matters (including health) when you do not have the capacity to make those decisions. However, your attorney’s power to make decisions for you on financial matters can begin immediately, from a specific date, or in particular circumstances (such as when you no longer have the capacity to make those decisions) as per your wishes. 

What are the benefits of estate plans?

The biggest benefit of estate planning is the peace of mind it provides, ensuring that your assets will be distributed to the right people. It will also help your loved ones avoid disputes and messy legal battles about the fair distribution of your assets. With help from legal and financial professionals, you can also distribute your assets in a way that minimises the tax obligations your heirs will face. Estate planning also allows you to outline the medical care you want (if incapacitated), ensure that your children are properly cared for if you die unexpectedly, and even dictate the sort of funeral you want. 

Estate planning mistakes to avoid:

You might think that any estate plan is better than no estate plan, but that isn’t always true. Simple mistakes – even something as seemingly innocent as a typo – can result in awful, unintended consequences.
1. If you want to leave a dependent out of your will, it’s best to seek professional advice as it needs to be stated clearly.
2. If you do not specify that debts are to be paid out before the distribution of your assets, certain beneficiaries might be unintentionally lumbered with the debt.
3. Many underestimate the size of their estate. Most, if not all, working Australians have superannuation, which can include significant life insurance. This alone can be enough to warrant an estate plan.
4. One in 10 people aged over 65 are affected by dementia, so it’s important not to ignore or gloss over the estate plan’s medical treatment plan and advance care directive, in case of mental and or physical incapacity.
5. It’s becoming more and more common in Australia for family members and other parties to challenge a will in court, so it’s important to take family feuds – or the potential for them – seriously.
6. An estate plan is not something you ‘set and forget’. It should be reviewed every few years, or whenever there is a significant change to someone’s personal or financial affairs.
7. Choosing the wrong person to be the executor of the will may cost the estate time and money and even leave the beneficiaries with a long period of vexation and anxiety while they wait for their inheritance.