Topic 4: Beyond the will: how to ensure your beneficiaries are protected

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For Baby Boomers with diverse asset bases in their family home, superannuation and other investments, the question of how best to transfer and preserve wealth for the benefit of successive generations is a complex issue that is increasingly becoming more important.

With the divorce rate amongst older Australians nearly doubling in the last 35 years, as well as the growing incidence of blended families in each generation, it’s never been more critical to ensure the assets you’ve worked so hard to accumulate over your life are distributed in the way you wish, once you’re gone.

In this article, the second in a two-part series about protecting your assets and beneficiaries, we look at a number of strategies you can put in place to protect your family and other beneficiaries after you pass away, and to ensure your final wishes related to your assets are carried out.

The first article looked at different ways of protecting your physical and financial assets, the role that various forms of insurance can play and why it’s important to review your insurance policies whenever you have a change in your circumstances.

Review your will and estate plan documents

Having a valid will is the centre-piece of any estate plan, as it provides the instructions for where and how your assets will be distributed.

It’s worth reviewing your will regularly, and particularly whenever your circumstances change. According to the MoneySmart website, some events may invalidate your will. For example, a new marriage will void your will but divorce will not.

According to Daniella Elchaar, a senior financial adviser at BT, if you’re one of the 50 per cent of Australians who don’t have a will, it’s important to get something in place “yesterday”.

“We advise clients to speak with their spouse or partner, and write down what they want to do with their assets. Dying intestate [without a will] is messy, and is the worst possible scenario for you and your family,” she said. “Don’t put your family through the stress and drama of dying without a valid will in place.”

The various state public trustees can assist you to write a will. Queensland’s public trustee offers a free will-writing service, while other states charge up to a couple of hundred dollars to write your will and an enduring power of attorney.

The next most important document in your estate plan, is an enduring power of attorney (EPOA). An EPOA is a legal document in which you nominate a representative or representatives to make personal, legal and financial decisions on your behalf. It can provide a safety net that gives you peace of mind that your wishes will be followed when you’re unable to do so personally.

This article provides valuable information about the importance of an enduring power of attorney and why it can could your life.

Using a testamentary trust to hold your assets

If you have a complicated family structure and want to ensure your assets stay directly with your children (as opposed to their spouses, ex-spouses, children or step-children), a testamentary trust can do this.

While a family trust can be set up while you are alive to hold your assets, a testamentary trust is created by instructions in your will, in the event of your death.

“This needs to be noted in the will. A solicitor will set up the testamentary trust upon death, and it’s managed through the estate,” Elchaar said. “I think this will come up more frequently with the growth in divorce rates and blended families.”

The main advantage of a testamentary trust is that it gives you more control over how your wealth is distributed to first, second and future generations – particularly if you’re concerned that one of your children for example, may spend their inheritance quickly, leaving little, if anything of your legacy and assets to be passed on to future generations.

Ensure your superannuation nominations are up to date

Next to the family home, a superannuation investment can often be your next most substantial asset, so you may want to consider nominating a beneficiary, that is – the person who will receive the remaining balance of your funds upon your death.

Superannuation nominations can be binding or non-binding. If your fund allows a binding death nomination, you can nominate one or more dependants and/or your legal representative to receive your super.

However, if you do not specify a nomination, the trustee of your super fund can either use their discretion to decide which dependants your fund balance is paid to – or they can make a payment to your executor for distribution according to your will.

The distribution of super death benefits is governed both by superannuation law and taxation law, and different rules and tax implications exist for dependants under each law. It’s worth speaking with your financial adviser, accountant or solicitor to navigate through these complexities and ensure your super will be distributed as per your wishes.

Using annuities to create an ongoing income

Annuities, also known as a lifetime or fixed-term pension, can be set up with your super fund or life insurance company, and use a lump sum from your super or other savings to create an ongoing income stream for you – or your nominated beneficiary when you pass away.

If you nominate a ‘reversionary beneficiary’ then the income stream payments will continue to be paid to your nominated beneficiary, such as your spouse or dependant.

According to the Australian Tax Office (ATO), “usually they will receive a reduced level of income payments from what you received. For example, if you bought an annuity and nominated your spouse as the reversionary beneficiary, they might continue to receive 60% of your income for the rest of their life, after you have passed on.

“Alternatively, you can choose the guaranteed period option. If you die within the specified guaranteed period, your beneficiary will receive the remaining income payments as an income stream or lump sum. Unlike the reversionary beneficiary option, the income payments received under a guaranteed period will not reduce and are only paid for the guaranteed period.”

Estate planning, and the transfer of wealth from one generation to the next can be complex, and very specific to your wishes and your personal circumstances. It’s always worth speaking with a financial adviser to help you navigate through the many rules and regulations that govern how assets can be distributed to your loved ones after you have gone.

Have you recently reviewed your financial and estate plans?

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Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.