The importance of Estate Planning
Having an effective estate plan helps you to prepare for the inevitable and the unforeseen by ensuring that:
- your legal and financial affairs are managed by somebody you trust if you are unable to do so yourself;
- health and welfare decisions can be made that align with your goals and values if you are incapacitated;
- a trusted person is appointed to manage your estate;
- your assets are protected from third parties and distributed to your intended beneficiaries with optimum taxation outcomes when you die.
Making a Will
Everybody over 18 should have a Will. If you don’t have a Will, you will die intestate and your assets will be divided according to the rules of intestacy which may not be as you would have desired. Your Will can also include important matters such as appointing guardians of your children.
A Will should be reviewed regularly, and particularly when your personal and financial circumstances change. Life changes can create problems for others in interpreting the terms of your Will which could become ineffective or even invalid.
A testamentary trust is a more complex Will that creates a trust or trusts after the testator dies. The trust assists in safeguarding assets from third-party creditors, protects at-risk beneficiaries and provides potential tax advantages.
Powers of Attorney
A power of attorney is a legal document that you can make to authorise another person/s to make personal and / or financial decisions on your behalf. The person appointed to do this is known as the attorney and the person authorising the appointment is the principal.
Personal decisions concern care and welfare arrangements, accommodation, daily routines and diet, and certain health-related decisions including consent to medical treatment. Financial decisions concern management of financial affairs like paying bills, investing money or leasing or selling a house.
The range of functions authorised under a power of attorney is specified in the document and may range from a one-off transaction to the complete management of your financial and legal affairs.
A general power of attorney can only be used for financial decisions and ends if the power is revoked by the principal or the principal loses mental capacity. A general power of attorney is usually used when a person anticipates they may need to sign documents or complete transactions when they will be unavailable to do so, for example while travelling.
An enduring power of attorney can be used for financial and / or personal decisions. The principal should nominate when financial decision-making authority is to commence which may be immediately or only if and when the principal loses mental capacity.
A power of attorney ends when the principal dies after which the provisions of the deceased’s Will (or the legislation governing an intestate estate) take effect.
Deceased Estates – executors and administrators
After a person dies, someone needs to look after their assets and administer the estate. An executor is the person appointed under a Will to do this. An administrator has the same role however is appointed by the Court through Letters of Administration when a person dies intestate or an appointed executor is unable to act.
Executors and administrators have significant legal responsibilities and may need to protect themselves from personal liability. This is particularly so with complex estates or where a claim is made against the estate. They will often need to consider matters outside their areas of expertise such as the tax implications on the sale or transfer of assets, the order of payment of debts, and the consideration of a family provision claim. Obtaining professional advice and guidance in these areas is essential.
Probate and Letters of Administration
An executor may need to apply for probate in the Supreme Court before administering an estate. The granting of probate ‘proves’ the Will of the deceased and authorises the executor to deal with the estate. The requirement to obtain probate depends on the size of the estate, the type of assets and how they are held. Most financial institutions require a grant of probate to release funds over a specified amount. Probate is also required to transfer real estate that is not jointly held between the deceased and a beneficiary.
A grant of Letters of Administration appoints the applicant administrator of the estate, allowing him or her to deal with the estate assets and liabilities in the same manner as an executor.