11 mistakes to avoid when making your will

Waiting until later … and dying without a will

The biggest blunder when it comes to inheritance and benefactors is not having a will at all! According to a Finder.com.au study, 14 per cent of people surveyed said they didn’t own enough assets or have enough wealth to justify the effort involved in making a will. However, an estate is rarely too small to justify not doing some kind of planning.

For example, all working Australians should have superannuation, which can include significant life insurance. This alone can be enough to warrant an estate plan and nominate a beneficiary.

Passing away without a valid will is known as dying ‘intestate’, which means the law determines how the estate is to be administered. These rules of intestacy follow a hierarchy of who should benefit from the estate. As every family relationship is different, those on the top of the list may not always be the most ideal recipients of your assets. And if you have no will or and no beneficiaries that fit under the hierarchy,  the state government is then entitled to your entire estate.

Not letting family know your will exists

Having a will is useless if nobody knows it exists. Make sure your loved ones know where to look for it when the time comes. You’ll want to ensure it is left in a secure place that is still accessible – like a locked drawer, home safe or safe deposit box. And if you hire a solicitor, they’ll most likely keep an official copy on file in their offices.

Not specifying your funeral preferences

A funeral or memorial is the very last chance to celebrate a life well lived. Making your funeral preferences known in your will ensures your loved ones can honour your wishes to go out the way you want – be it with specific funeral provider, or simply the type of memorial you’d like.

To avoid the financial stress on your family later on, you can even arrange a prepaid funeral through Bare Cremation or your preferred funeral provider.

Failing to provide for dependants

If you have step-children and would like to include them as beneficiaries, simply stating “my children” in your will doesn’t automatically cover them. You need to explicitly mention any step-children by name in your will if you want them to be included in the distribution of your estate. Legally adopted children, however, will be considered the same as biological children.

If you purposefully want to leave someone out of your will, you should always seek professional advice. A lawyer may suggest preparing a supplementary statement to explain why you are not providing for the person, This won’t necessarily prevent that person from challenging the will, but it means they can’t argue that they have simply been forgotten.

Getting the executorship wrong

Choosing an executor to take ownership of administering your estate is such a vital role, yet so many people forget to name one, or choose poorly.

An executor will be responsible for ensuring your estate is properly distributed, as well as for arranging and paying for the funeral and other administrative expenses of the deceased (often in consultation with the deceased’s loved ones). As such, nominating an executor who isn’t capable of or willing to do the paperwork and organisational duties required could cost the estate time, money or both.

It isn’t necessary to hold any professional qualifications to act as executor. You can choose a friend or relative or appoint an independent trustee organisation or a solicitor. If no executor has been named in a will, the probate court will appoint one, however that person may not have been the deceased’s first choice.

Having an invalid will

Many people think a photocopy of a will is valid. But an executor needs an original will document to legally administer your estate and get a grant of probate to manage your affairs.

In all states and territories in Australia, a will is not a valid legal document unless it’s signed in the presence of two witnesses (both of whom need to be 18 years or older). In some states both the witnesses and the will-maker need to be present at the same time (there’s some leeway on this during Covid-19, which you can read about here), but others permit the second witness to sign later.

Additionally, the will-maker can sometimes pass away without having finalised and signed it themselves and if it’s not signed, it’s simply not valid.

If you wish to make changes to a will after it has been signed and witnessed, it’s not as simple as crossing a few things out and adding a note in its place. To amend an existing will, you will have to make an official alteration called a codicil, that must be signed and witnessed in the same way as a will. Alternatively, you can make a new will altogether.

Being too specific

If your intentions are not explicitly clear, they may not be followed properly, or the will could even be ruled invalid. On the other hand, being too specific can also be problematic. For example, if you state that you wish for your “white Mercedes” to be left for your eldest child but you later sell the car but fail to amend your will, it can lead to confusion and potential disputes.

You can get around this by being more general with the details of certain assets – opt for language like “the car that is in my name”, or update your will periodically.

Forgetting assets

Failing to take proper inventory of your assets is another pitfall. Most people remember the tangible assets like a car, property and jewellery, but often will-makers forget financial assets.

When making a list of assets to leave your loved ones, be sure to include all of the bank accounts, premium bonds, shares and any other potential funds you may have. Keeping a list of both the tangible and intangible assets will ensure you’re not accidentally leaving anything significant out of your will.

Ignoring competency issues

While it’s not something we’d like to think about, 10 per cent of Australians aged over 65 are affected by dementia, and 30 per cent of those over 85, according to Dementia Australia.

A will-maker needs to be of sound mind when making a will so in cases where there is an allegation that the deceased lacked the full capacity when they wrote it, often due to dementia, the will’s validity can be challenged. You can learn more about the importance of capacity here.

If you are particularly advanced in years or have a condition that may affect your mental capacity, it’s best to get a letter from your doctor confirming you are of ‘sane mind’ when making your will to avoid any possibility of a disgruntled family member challenging your capacity later on.

Not accounting for debts and tax

Before an estate can be distributed, the executor will need to pay the deceased’s debts, some of which, such as an outstanding mortgage, can take a fair chunk of the estate. If you don’t account for this when specifying who gets what in your will, the distribution of your assets can be unfairly divided when a beneficiary becomes unintentionally left with the debt before taking their share.

For example, let’s say the eldest child is left life insurance to the value of $500,000 and the second child is left an investment portfolio also worth $500,000 – but the investment portfolio has borrowings of $100,000 attached to it. While it may have sounded like an even distribution on the outset, the first child actually received $500,000 worth of assets, while the second child only inherited assets to the value of $400,000.

Debts can generally be paid directly from the estate account but there are a number of tax considerations that can also impact on how much beneficiaries end up receiving from an estate. These include income tax, capital gains tax and land tax. Any assets owned at the time of death can generally be transferred to beneficiaries without the need to pay capital gains tax, although the beneficiary will need to account for this when they eventually sell the asset.

Establishing a testamentary trust can be an effective way to minimise tax on income, particularly when leaving assets to beneficiaries who are minors. Set up with a will, a testamentary trust can be used to protect a beneficiary’s inheritance and distribute income tax-effectively.

Having an outdated will

Many people underestimate the impacts of big life events. As well as updating your will if you get married, divorced, have children or simply change your feelings about Uncle Frank, other life events  that could require a change to your will may include:

• the birth of another child or grandchild
• the death of a loved one
• buying a new home or another significant investment.

It’s also worth noting that all parts of a will are not automatically revoked when you divorce, so a former spouse may still have a right to claim on your estate. It’s wise to seek professional advice here because the law here can be complex. Regardless, wills and estate plans shouldn’t be a ‘set and forget’ approach, but reviewed every few years or whenever there is a significant change to your personal or financial affairs.

Your will does not need to be lodged or submitted anywhere. Just ensure you make one! Keep a copy in a safe place and give another to your appointed decision-maker, executor or lawyer – and then get back to living!

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.