When preparing a Will many people mistakenly believe that everything that they own, or have an interest in, will automatically be covered and the estate distribution process will be a smooth one. Unfortunately, this isn’t always the case so it’s important to consider what assets make up an estate and more importantly talk about those items that don’t and what you can do to address these.
Let’s begin with what is often a person’s largest asset which is the family home and other real property assets. Whether these will form part of your estate or not is dependant on the way that they are owned. If you are the sole owner of a property then these will form part of your estate upon death. If however, the property is owned in conjunction with someone else then it gets a little more complicated. Jointly owned property can either be held via joint tenancy or alternately as tenants in common, with each of these having a different impact on your estate planning decisions.
The most frequently used ownership structure within Australia is for a property to be held as joint tenants. In this scenario the deceased person’s share of the property will automatically pass to the surviving owner so it will not form part of the estate or be dealt with within your will. Ownership as tenants in common on the other hand means that the share of the property can be passed to another party, including to someone other than the joint owner. As a result your share of the property does form part of your estate and it needs to be addressed in your Will.
Another important asset that forms part of your estate and needs to be taken account of in your will is your personal possessions. These can include items such as jewellery, art, vehicles, bank accounts, collections, shares and managed fund investments (held outside superannuation). All of these items form part of your estate and who receives what can be detailed within your will. The benefit of providing directions for these items in some detail is that it will assist your executor in determining who you want to receive what from your estate. For instance, you may want a particular piece of jewellery to go to a child or grandchild that you know will treasure it.
We mentioned that shares, managed investments and other financial investments will form part of your estate however, it would come as a surprise to many that the investments that you hold within your superannuation fund do not. Contrary to popular belief the money held in superannuation is usually an outside estate asset unless you specifically direct your super fund to send the money to your estate.
So, what actually happens to your super in the event of your death? Once the super fund has received the probate documentation the super fund trustees will determine who has a claim on the money and will determine who gets what from there. The difficulty with this is that they will not have the insight into your particular circumstances that your executor is likely to have which means the funds may not always end up in the hands of who you would like to receive it. In order to overcome this and help the trustees deliver your funds to where you would like it to go you may nominate a beneficiary on your superannuation account. This can be done be either a preferred nomination, where you highlight who you would like to receive the fund’s however, it is not binding on the trustees, or via a Binding Death Benefit Nomination where the trustees have an obligation to pay it as you have directed. It is important to note that only certain classes of beneficiaries can be nominated as a binding nomination so check out our other resources before you make your nomination.
Now that we've detailed how super is dealt with, what about insurance held in a super fund. In the event that your super account has a life insurance policy attached to it the proceeds of that policy will be paid directly to your superannuation fund. This means that those funds do not form part of your estate unless you have nominated your Legal Personal Representative, that is your estate, as the beneficiary. In contrast life insurance held outside superannuation may be passed directly to a specific beneficiary if they are nominated on the policy or to the estate if no beneficiary is nominated. This is an important area when considering your estate planning needs and you should consult with your insurance or estate planning professional, to ensure the right steps are taken to get these funds into the right hands, at the right time.
An area often overlooked when thinking about estate planning is what happens if you are involved in a business or have a discretionary trust in place? Again, the outcome is determined somewhat by the structure used but generally speaking these assets need to be considered separately when preparing your will. As an example, if a business is run as a private company then the ownership stake in that company is determined based on the shareholdings of its shareholders. If a shareholder passes away the will needs to address where those shares get distributed, and this will ultimately determine who then controls the business into the future.
Similar complications arise when a person has assets that are held outside of Australia. Generally speaking a will only covers assets within the jurisdiction that the asset is held so assets held in a foreign country will be distributed in line with the laws of that country. Establishing a will in the country that the asset is held, whilst often time consuming and logistically difficult, is a step that can provide sound estate planning outcomes. Another option that may be useful would be to establish an international will. At this stage only limited countries have signed up to this convention. We recommend that you consult with an estate planning professional to discuss this area if it impacts you.
The final part of an estate is one that causes many families concern and that is in relation to debts upon death. Unfortunately, death does not absolve someone from their liabilities that have been created over their life however, those debts are restricted to the assets of the estate and in most circumstances they are not payable by the surviving family. Should a person die owing funds to creditors the executor of the estate has an obligation to sell assets to meet those debts prior to any disbursements being made to beneficiaries. These debts are paid out in a hierarchy enshrined in legislation and the estate will receive the remaining assets or funds after these obligations have been met. Should an estate be unable to meet its debts these debts are usually forgiven unless a guarantee on the debt has been given by another party.
It is clearly evident there are a lot of issues to consider when determining what is and isn’t included in your estate. It’s vital that you make your Will in consideration of these issues to ensure a smooth transition for both your executor and your beneficiaries.
If you would like further information about making a Will or other Estate Planning issues take a look at our video library or get in touch with one of our expert Wealth Advisors in our Ulton Wealth Management team today.
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