Five things to do to get your estate in order


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Estate planning can be an important part of your life plan.

When planning for who gets what on your death, these are some of the factors you need to bear in mind.

1. Make a will

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This is the key act of estate planning because it gives you the chance to determine what will happen to your assets on your death. A will can be a simple or complex as you want but should generally be prepared by a solicitor - avoid DIY will kits.

Make sure that the executor (and possibly other family members) knows where the will is kept -whether it is at the solicitor's office or in a rusty box in the attic, it is important that is kept in a safe place and that it can be found at the right time.

2. Not all assets can be dealt with by the will

If you are a home-owner with a spouse, the chances are that legally speaking you hold the property as joint tenants. That means that if one of you dies, the property automatically goes to the other spouse.

As such, any attempt by the deceased co-owner to deal with their interest in the asset in their will is ineffective.

The other way of holding property is as tenants in common. This means that you each hold a separately identifiable part of the property and there is no requirement that those parts be equal.

An interest held by a tenant in common can be dealt with in a will.

It is vital, when preparing the will, to identify how property is held. Adequate records should be maintained so the executor can work out the type of arrangement that assets are held under (e.g., a copy of the purchase deed).

Superannuation is also usually dealt with outside the will. A super fund will typically pay any benefits due on death in favour of the people listed in the death benefit nomination, by-passing the will. Make sure your Death Benefit Nomination is up to date and correctly records your intentions.

3. Consider lifetime gifts

Most people use their Will to determine how their assets will be distributed after death but it can be worthwhile transferring some assets before death.

If you wish to make gifts of cash, consider making them before death as cash is capital gains tax (CGT) free. In addition, if you have brought forward (or current year) capital losses, you can transfer CGT assets (such as shares and property) to your family now and use the capital losses to shelter the capital gains.

So, you get to transfer the assets tax-free and the recipients will also benefit because they'll acquire the assets at a higher CGT cost base, meaning lower CGT bills for them when they ultimately sell the assets (they will acquire the assets for market value as a result of a lifetime transfer, rather than at your original purchase cost as a result of inheriting on death).

4. Consider nominating a power of attorney

A power of attorney (POA) is a formal document that gives one person (the attorney) authority to represent another person (the principal) in, for example, collecting debts, operating a bank account, operating a business or signing legally binding documents on behalf of the principal.

People create an enduring POA as part of their estate planning process so that if they become seriously ill or incapacitated, the attorney is able to continue to manage their affairs, including paying bills and medical expenses.

In the event that you lose your decision-making capacity (for example, through illness), it is useful to have created an enduring POA because your affairs can be managed by somebody you know and trust. If you don't appoint one now, the Courts may be required to appoint one on your behalf and it may be someone you would not automatically consider.

5. Do you need to protect your assets after death?

Do you have children with an untrustworthy partner? Or who you are concerned may go through marriage difficulties? Do you have family members who are at financial risk, e.g. children with a drug habit or at risk of becoming bankrupt? Do your children require special care that can continue for years or even decades after your death?

If so, it can be intimidating to think that on your death some of the beneficiaries will inherit your estate and are then at immediate risk of squandering it.

Fortunately, a solution is at hand. A testamentary trust is a discretionary trust created by your Will. The trustee of the trust (appointed by you before death) has complete control over the assets in the trust and can select from the class of beneficiaries who will receive a gift of income or capital from the trust. Testamentary trusts can make sure inheritances reach the intended recipients.

An independent trustee can guarantee that vulnerable beneficiaries, such as very young children or the ill, unstable or disabled, will be provided for.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.