What is Estate Planning? Definition, Benefits & Strategies

Daniel Brown

Financial ExpertUpdated on June 20, 2023

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Mourning the loss of a loved one is a reality Australians face each day. While the grieving process may vary in length, it’s important to have a clear plan for how your estate will be managed after you’re gone. 

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Without discussing and preparing a comprehensive estate plan, the distribution of your wealth and assets can get messy, adding to the pain and suffering associated with your death.  

It’s important to determine how your assets will be distributed, and who they will be distributed to. For example, if you have significant investments, an operational business, or a blue-chip property, who will get those when you’re gone?  

As difficult as it is, it’s essential to have this conversation. 

This article will guide you through how to prepare your estate plan, the benefits and risks of an estate plan, and other essential things to consider before making the necessary arrangements. 

What Is Estate Planning? 

Estate planning involves the preparation of tasks required for the management of an individual’s assets in the event of their death. It ensures that everything you own will go to the right people when you pass away. It’s a more intensive process than planning a will, as it involves different documents to secure your assets after your death. 

An estate may include bank accounts, insurance, investments, land properties, vehicles, and other items of value that are part of your estate. 

An estate plan provides a financial buffer for your family and loved ones. When you name your family members as beneficiaries, you can be sure they will inherit what you leave behind and not some random people or organisation you’re not familiar with. 

The cost of setting up an estate plan depends on your financial situation and the complexity of your wills and estates. If you have specific requests, i.e., you own a business or you’ve been married more than once, the cost of establishing your estate plan may be higher. 

What Are the Benefits of Estate Planning?

An estate plan gives you the control to decide who will inherit your assets. Several benefits of having an estate plan include: 
  • Ensuring your properties are bequeathed to the intended beneficiaries
  • Eliminating any family disputes 
  • Protecting your children 
  • Minimising taxes by effectively managing tax consequences  

Preparing an Estate Plan

Having a clear picture of your values and finances is the first step to preparing an estate plan. In this case, you must consider your assets and liabilities, their legal owners, and how much those assets cost. 

 If you’re considering updating an existing estate document, you may wish to talk to your partner or a trusted family member. 

Financial planning can be a  complex and long-winded process. Therefore, it’s beneficial to seek professional advice from estate planning lawyers, financial planners, tax accountants, and financial advisers. 

Seek for reputable financial advice services to guide and inform your financial decisions. This will help ensure financial safety and security for your family members. 

Knowing the Elements of Estate Planning  

According to research conducted by the Australian Securities and Investments Commission (ASIC), about 50% of Australians don’t have a will. Others have drafted one but lack a comprehensive estate plan. 

The following documents may be included in an estate plan:

  1. Life insurance may be held outside or inside superannuation. Make sure to specify how its proceeds should be paid to beneficiaries. 
  2. An advance healthcare directive is a living will that outlines the preferences for your future care. When you are unable to make decisions yourself, the directive appoints a proxy – such as your doctor – to make future care decisions on your behalf. 
  3. Powers of attorney (POA) apply when you lose the capacity to make decisions but are still alive. Unlike a general POA, which has limits, the enduring power of attorney will make decisions on your behalf during your lifetime. 

It’s a good idea to consider legal advice to understand the instances in which you may need to nominate someone as your power of attorney. 

  1. Testamentary trusts (TTs) may provide a level of protection from legal action against your beneficiaries in the event of bankruptcy or divorce. 
  2. Superannuation death benefit nominations are determined by your super fund. To ensure that your money will be given to the right people, it’s important to have a death benefit nomination (DBN) in place, along with your super fund.

Following relevant laws, your super fund trustee will need to pay a death benefit. A binding death benefit nomination will override a trustee’s discretion.  

  1. A will is a legal document that predetermines how your assets should be distributed after you die. When writing a will, make sure to appoint at least one executor to ensure your wishes are enacted. 
  2. Power of guardianship is another legal document in which you authorise a person to make lifestyle and personal decisions for you. 

What Are the Different Estate Planning Strategies?  

An estate plan is key to your overall financial plan. While general strategies can be beneficial, a tailored plan is recommended to ensure you cover all the best options for you and your loved ones. 

Suggested estate planning strategies include:

Look at Your Overall Wealth Management 

Start with your wealth management and create a plan to help gather the resources necessary to achieve your goals. 

Consulate with your financial planner to tailor a personalised strategy using various financial services and products.

Consider Transition to Retirement 

Generally, you should reach the preservation age before you can access your superannuation. If you are between 55 and 60, you are eligible for transition to retirement (TTR) for asset protection. Transition to retirement enables you to work part-time and collect a regular income stream from your superannuation. 

Reduce Risks and Protect Your Assets 

Life can be unpredictable, so you need to protect your estate assets. Ask your financial advisers what your options are for minimising risk when structuring your retirement savings and investments. 

Plan Your Business Exit 

Succession planning provides key stakeholders with information on how business assets are controlled and owned. 

The plan is important if several people own a business. It prevents unintended beneficiaries from taking hold of the company. It also allows for the buyout of co-founders under certain conditions. 

If you own a company, ensure that you have a business succession plan in place so that the value of your venture will not be affected in the event of your death. 

Lessen Your Tax Burden 

You can establish a family trust to minimise the taxes of your dependents. A family trust can protect your assets during a divorce or bankruptcy and can provide income for children with disabilities.

 When you create a family trust, you can ensure that your children will receive your assets if your surviving spouse decides to remarry. 

Get the Right Insurance

 Make sure to optimise your insurance by thinking carefully about your needs. With so many insurance products available, choosing the right one can be overwhelming. Make sure you get sound financial advice, so you know which insurance policies apply to you. 

Be Wise About SMSF and Superannuation

Some Australian citizens start a self-managed super fund (SMSF) to build and protect their wealth. 

You may want to consider this strategy if you’re looking for increased control over your investments, better tax management, and improved direct investment risk management. 

However, an SMSF comes with significant responsibilities and higher running costs.  

Penalties may apply if you encounter non-compliance issues. Therefore, make sure to register your superannuation fund or SMF and acquire an Australian business number (ABN) to avoid such incidents. 

Recognise Aged Care Fees 

Aged care fees have different categories: 

  • Basic daily care fees
  • Means-tested fees
  • Accommodation payments
  • Fees for additional services  

Seek professional advice on how you should structure your investments to pay for the costs of your aged care. Strategies like increasing your age pension allow you to have enough cash flow to compensate for these services. 

Review and Update Your Will

Intestacy happens when you die without leaving a valid will. Your death will be considered as an “intestate”. 

In the absence of a will, who will inherit your estate? You need to review and update your will regularly. Without it, your loved ones may end up spending additional time, emotional energy, and money to settle your affairs after you’re gone. 

  With the help of estate planning lawyers and financial advisers, you can work out tax implications such as probate, capital gains tax, estate administration, and entitlements that are predicated on your death. 

Seek General Advice As Your Situation Changes 

Your goals, assets, and liabilities may change from time to time. Australian laws and regulations may also change. Therefore, seeking ongoing support for your estate plan is highly recommended. 

With regular updates to your legal documents, wealth management, and life insurance policies, you can protect your loved one’s future and have peace of mind, knowing your financial affairs are being managed properly. 

What Are the Other Things to Consider With Estate Planning? 

Your will only deals with the assets that you own. Below are some of the assets that may be included in your estate plan, but maybe excluded from your will. 

Companies and Trust 

Additional documentation may be needed to ensure control of these structures and their assets. Make sure to ask for professional advice for more information.

Beneficiaries Receiving Benefits From the Government

If your beneficiaries receive government benefits, consider the effect of your inheritance on these benefits upon drafting your estate plan. 

For example, disabled children may lose government support when they receive an inheritance. Therefore, you should plan how to transfer that wealth in such a way that your child still gets government support. An example of this is through a special disability trust. 

Excluded Beneficiaries

Excluded beneficiaries, like an estranged child, may still have a claim to some part of your estate. Seek advice on how much they may be entitled to. 

Are There Any Risks With Estate Planning? 

Having clear goals, seeking professional advice, and developing a thorough and comprehensive estate plan will lower your risks and liabilities. Sufficient planning will help protect your beneficiaries, as well as the value of your estate.

Additional Tips on Estate Planning 

Ensuring that the right people are involved makes a difference when establishing your estate plan. It could be your spouse, a relative, or a trusted friend.

Speaking to your beneficiaries about their inheritance can lead to a better understanding of your estate plan. 

The process of developing a successful estate plan is far more complex than preparing and finalising legal documents. Therefore, you must seek the expertise of financial advisers to add significant value to your business and relationships. 

Make sure to get help from financial advisers with Australian Finance Services Licences (AFSL).  That way, you can be sure that your financial service provider meets basic standards like insurance, compliance, training, and dispute resolution. 

You may also use a will kit to weigh the potential issues that may arise when speaking with a professional. 

What if you could tap into the wisdom of an experienced financial adviser instead of taking the all too common ‘hit-and-hope’ approach?  

Many people may be unaware of this…but just like you, 41% of Aussies intend to get financial advice rather than going it alone, according to an Australian Securities and Investments Commission (ASIC) report.

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