Do you have a valid Will? Bear in mind that a Will you made in the past might no longer be valid, for example if you have been married or divorced in the meantime, or might be valid but inappropriate in view of your changed circumstances.
Following are some reasons to make a Will – or a fresh Will:
You can decide who benefits
If you die intestate, that is without leaving a Will, your estate (which may in certain circumstances include the proceeds of any life insurance and superannuation death benefits) is divided according to the law and you will have no say in how your estate is distributed. The operation of the law may be totally different to what you would have chosen. For example:
If you die without a will your de facto partner may not automatically be entitled to your estate. He or she might stand to lose the assets and treasured personal belongings that you want this person to have.
If you die without a will you cannot make gifts to anyone other than family, and some family you might have wanted to exclude will be able to benefit from your estate.
If you die without a will you may be unable to leave your whole estate to your spouse, even if they are the other parent of your children.
You can choose your executor
When you make a Will, you appoint an executor who is responsible for looking after your estate and distributing your assets according to the instructions contained in your Will. If you don’t make a Will you will have no say in who administers your estate, meaning important decisions may be made about your assets by someone you may not have chosen as trustworthy.
You can secure your children's future
If your children are under the age of 18 years, you may choose to nominate guardians for them in your Will and to make arrangements for their maintenance and education. You may protect children and vulnerable beneficiaries financially through testamentary trusts controlled by someone you have chosen as trustworthy.
Unless your Will specifically contemplates your marriage or divorce, marriage and divorce automatically cancel all previous Wills. So if you have made a Will before you married or divorced and still want to continue to provide for those beneficiaries or make arrangements to cater for the new circumstances, you will usually need to make a new Will.
Early and less expensive distribution of estate
A professionally-drawn and properly executed Will greatly assists the cost-efficient administration of your estate and the early distribution of your assets to the beneficiaries named in your Will. There is considerable extra expense associated with obtaining Letters of Administration rather than Probate, determining the relevant family entitlements and dealing with family disputes.
Flexibility, tax minimisation and asset protection
A simple Will enables you to avoid all of the problems listed above. But a more sophisticated Will specific to your circumstances and incorporating optional default beneficiary-controlled testamentary trusts may also enable you to provide a real benefit to your beneficiaries by allowing them flexibility to distribute income on their inheritance efficiently for income tax purposes, and in some cases providing them with a degree of asset protection against creditors (including in bankruptcy proceedings) and spouses in family law disputes. Recent developments in family law have given the courts wider powers to make orders against non-parties to the proceedings – such as trustees – so the protection in the case of disputes with spouses may be limited. However, protection against other creditors by this type of arrangement is still very strong, provided care is taken in drafting the Will.
Although superannuation does not automatically form part of your estate, it can, in some circumstances, be paid to your estate and it is important that your estate is ready to deal with any superannuation moneys paid to it. A separate issue which your Will can address is a situation where you have left your assets to your children equally but for one reason or another your super fund has decided to pay your super to your children unevenly. A professionally drawn Will can ensure the estate is distributed in such a way as to ‘even up’ any inequity caused by the decision of a superannuation fund or any other non-estate payment (including gifts during your lifetime, life insurance payments, wages foregone etc). Or you may decide to leave your super to a beneficiary who under the super rules will pay less tax, and you may wish to then use your estate to even up the inheritances.
Assets held in family trusts are not owned by you personally and therefore do not form part of your estate and therefore they cannot be dealt with by your Will. However, your Will can allow for either transfer of control of the family trust or termination of the trust upon your death. Also, a loan owed to you by a family trust is treated as an asset of your estate so if, upon your death, you don’t want to have your executor chasing up this debt, your Will needs to be drafted to instruct the executor specifically in this regard.
Where you have entered into an agreement during your lifetime which is intended to operate after your death (for example, a buy/sell agreement in relation to your business – see below for more information) then it is appropriate that your Will alert the executor to the existence of any such agreement and direct them to uphold it.
When you die, the balance of your superannuation (including the proceeds of any life insurance owned by your super fund in respect of you) is paid to another person or people as a superannuation death benefit. That person can be your estate, however, if one or more beneficiaries is a tax dependant under the super rules, there may be significant tax advantages associated with paying the death benefit directly to those beneficiaries, not via the estate. It is important to make sure that your affairs are arranged so as to ensure that your superannuation death benefit – which can be a significant amount of money and sometimes represents the bulk of your assets – is paid to the person or people you want it to be paid to with as little of it as possible coming out in tax.
Once it was always the ultimate decision of the trustee of the super fund as to where your death benefit was paid. Now for most funds it is possible to make a “binding death benefit nomination” which enables you to control exactly where your death benefit will be paid. However, your binding nomination is always subject to the super rules. Those rules limit the types of people to whom your super can be paid. If you want to give your super death benefit to someone other than an allowable dependant, you will need to get professional advice as to how to achieve this, along with assistance in drawing up the necessary documentation. This may include making a binding nomination to pay the super death benefit to your estate, and then making sure your Will is in order to deal with the funds (see above section on Wills).
An enduring power of attorney allows someone you trust to make financial decisions on your behalf if you are incapacitated, for example in the case of an accident or some kind of illness. It is important to understand that an enduring power of attorney is only effective while you are alive, whereas a will only has effect after you die. Therefore, it is generally recommended that you have both in place.
Enduring powers of attorney are, however, not for everyone. They allow another person to take out loans in your name, sell your assets and basically do anything you could do with your assets, so an enormous degree of trust is required. If you are confident that the requisite level of trust exists, enduring powers of attorney can save your partner significant inconvenience in the event that you do become incapacitated, allowing him or her to deal with the assets (which they may need to do if you are not working) without having to apply to the State Administrative Tribunal for permission to administer your financial affairs.
You can also make an enduring power of attorney out in favour of your children or any other person or persons (up to a maximum of two). Many people do this if they are diagnosed with a condition which will ultimately see them lose capacity to make decisions themselves.