How to avoid big estate planning blunders

Here is a quick guide to avoiding five of the biggest estate planning potential blunders.

1. Where there’s a will (may not be enough)

Using a do-it-yourself ‘will kit’ may seem like a simple and cost-effective way to implement estate planning. Often people think they have a clear idea of what they want to achieve with their estate planning.

For example, it’s not uncommon that someone would like to provide a small benefit to a charity or several charities, and then divide the remaining estate between their children. But this prompts myriad questions: How old are the children? Is a large lump sum appropriate? Are there children from a previous marriage? Are any children still minors, will they need a guardian? Ex-partners? Asset ownership? Superannuation? Insurance? etc.

If the multiple variables and potential outcomes of estate planning are not considered there can be considerable problems down the track, especially if the person who completed the will kit had little or no knowledge about structuring financial affairs or the ownership of assets. And just because a document is in the format of a will, doesn’t mean that it actually covers everything that a will needs to cover.

In our increasing litigious society, it is becoming more common for family members, and even other parties, to challenge a will in court. Each state in Australia has its own specific legislation covering who can challenge an estate. In some states, the list is very broad and can include anyone to whom an individual has an obligation or responsibility.

2. Why a divorce may not be the final split

Divorce and separation can be catalysts for people to kick off or reconsider estate planning. But they can also throw a real spanner in the works.

Prior to divorce, many couples will separate. During this period, an ex-partner may still inherit benefits if a person dies after separation but before divorce is finalised.

As well, things don’t necessarily become resolved after a divorce. While marriage automatically revokes all previous wills, divorce does not always. Different states have different rules, which just make the situation more complex. Also, a divorce does not remove the nominated beneficiary from the will completely. It may still play a role if there are minor children involved.

3. Understanding the art of a good executor

Unfortunately, people often choose an inappropriate executor and/or trustee. Many people, for example believe appointing a family member or friend is a good idea because it may save money. But an inexperienced, incompetent or distracted executor can end up costing an estate, and its beneficiaries, a great deal of money.

For example, if an executor does not have experience with capital gains tax, income tax, investment decisions, superannuation balances, and the correct interpretation of ambiguously expressed directions, they may require independent (and costly) advice. As a result, beneficiaries can be left with a long period of frustration and angst while they wait for their inheritance.

As well, this can lead to more problems for the executor as they can ultimately be liable to the beneficiaries for any negligent management of the estate that may arise from their lack of expertise. And lack of understanding of the role of executor is not an excuse.

It’s also worth being aware that nonprofessional executors can seek an executor’s commission for their duties.

4. Do today (what you could easily put off till tomorrow)

For many people, putting the time into developing a quality estate plan is something to put off for another day. But the truth is that, anyone who has children, owns their own home or is a member of a superannuation fund should have an appropriate estate plan.

Many financial advisers have experience with clients who have had a devastating experience as a result of not planning for unexpected and unfortunate events.

5. Don’t put up with (elder) abuse

Across Australia, there are more than 353,800 people living with dementia. Without a medical breakthrough, the number of people with dementia has been projected to rise to almost 900,000 by 2050.

Elder abuse involves the misuse of an older person’s money, property or other assets, typically by a person who is in a position of trust. Sadly, history has shown that it can involve family, friends and others.

Maintaining an on-going relationship with your Financial Adviser can greatly assist in ensuring that your estate planning wishes are up to date.

If you have any questions or queries about what you have read please always feel welcome to contact us at any time.

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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