Common Mistakes When Estate Planning and How to Avoid Them
Common Mistakes When Estate Planning and How to Avoid Them
Welcome to the next instalment of my ‘Common Mistakes and How to Avoid Them’ saga! Today we will be tackling 7 common estate planning mistakes and, you guessed it, how to avoid them.
Mistake #1: Assuming Testamentary Trust Wills are Only for High Net-Worth Individuals
It is true that testamentary trust wills are the best option for people with more assets to give out. However, they are not the only people who use testamentary trusts. Having your assets go into a trust rather than straight to your beneficiaries also works well for blended families, families with young kids (since you cannot give your home to a two year old, for example) and it offers protection for vulnerable beneficiaries with disabilities and difficulty managing money responsibly.
Mistake #2: Assuming Non-Estate Assets Can be Gifted in the Will
As the name suggests, estate planning only deals with your estate assets that are directly in your name. It does not include company assets, assets held in a unit or discretionary trust and assets held in a partnership because you are not the sole legal owner of those assets. These will have to be dealt with separately on a case-by-case basis.
Mistake #3: Failing to Nominate Substitutes
When estate planning, you are encouraged to declare who will become your beneficiary, attorney or enduring guardian if the one/s you appointed are not able to fulfill their tasks. Estate planning is all about being prepared, and that includes having a Plan B. You can read my ‘Why Estate Planning is so Important’ article from September 2024 to learn what happens when you don’t have a will or acting beneficiaries. Spoiler alert: it’s not good.
Mistake #4: Neglecting Superannuation
Many forget that your super is where much of your wealth comes from. Depending on how your will is structured, super can be classified as either an estate or non-estate asset. To ensure that the person whom you want your super to go to gets it, you need to create a binding death nomination. This ensures that super is counted as an estate asset so that you can gift it to a beneficiary.
Mistake #5: Failing to Regularly Update Your Estate Plan
Your estate plan is not a ‘set and forget’ document. It should be reviewed fairly regularly; I recommend once a year. This is to account for changes in your plans such as the birth of a child, death, marriage, divorce or any other changes that occur within your close family.
Mistake #6: Lack of Preparation for Beneficiaries
Unlike your Power of Attorney documents, you do not need your beneficiaries to sign your will. Many mistakenly assume that this is because they do not need to be involved in the process, but this is far from the truth. Make sure that your beneficiaries are aware of roughly what they will inherit so that they can be prepared. And most importantly, tell them where your will is! Wills are surprisingly easy to misplace.
Mistake #7: Failing to Declare Trust Assets
No tax exists for an inheritance. However, there are tax implications for assets put in a trust. To avoid your beneficiaries receiving higher taxes from their inherited tax, declare the assets put in the trust to avoid tax implications.
If you have any questions about building an estate plan that is right for you, please do not hesitate to contact me. I am here to help.