Understanding estate planning: What you own, what you don’t and what you need to consider

Some people don’t realise the only assets that can be distributed under the terms of their Will are those assets owned in the sole name of the person making the Will. That usually means things like jewellery, cash or a home they own outright in their personal name. 

But often a significant portion of someone’s wealth is not owned by them personally – which means it is not covered by their Will – and that spells trouble!

Estate assets versus non-estate assets

Assets owned in your personal name are known as ‘estate assets’. You can be sure these will be distributed according to your Will.  

There are many assets people think they own, but they actually don’t. For example, you don’t actually ‘own’ your superannuation or life insurance. You also don’t have any ownership rights to assets held by a family trust of which you may be a beneficiary.  Surprisingly, if you own any property as joint tenants with another person, you cannot gift your share of the property to another person under your Will. These assets are known as “non-estate assets”.

It pays to know there is a distinction between estate and non-estate assets – and not knowing this can create significant issues when someone dies.

What to look out for

A robust estate plan considers what will happen to both estate and non-estate assets after someone dies. Professional advice provides you with security knowing that both types of assets are properly identified – and then taken into account via estate planning so that what you intend to happen when you’re gone, can actually happen.

Some considerations for estate and non-estate assets:

1. You can nominate the beneficiary you would like to receive your superannuation death benefits or lift insurance proceeds when you die. There are some restrictions governing who can be nominated to receive these entitlements and the superannuation nominations (also called ‘binding death benefit nominations’ or BDBNs) are generally only valid for three years. It is important to remember who you have nominated and to update your beneficiary nomination if your personal circumstances change. The usual reasons people change their BDBNs include marriage and the birth of children. Self-managed super funds (SMSFs) have their own, more complex, regulations about beneficiary nominations and the continuance of the fund after the death of a member – so professional advice is a very good idea. 
2. When it comes to family trusts, there is often confusion about who is entitled to what when one of the beneficiaries of the trust dies. The Trustee – which can be a person or a company – of the family trust is the legal owner of the trust assets. They are responsible for managing the trust assets for the benefit of the beneficiaries and must act according to the legal document (the Trust Deed) which governs the operation of a family trust, how assets can be distributed and how Trustees are appointed. But here’s the important part –  a beneficiary of a family trust is not able to bequeath trust assets in their Will.
3. A blended family means a multitude of additional considerations – including more thorough thinking about estate planning. A solid plan will take into account how a couple wants their jointly and individually-owned assets to be distributed to each other, their children from previous marriages, and their children from the current partnership if there are any, plus any other intended commitments real or implied to extended family.  It is important to remember that ALL jointly held assets will automatically pass to the surviving partner when the first of them dies. If your intention is to leave something to your children pre your current marriage, then you must have sufficient assets in your sole name to achieve this objective. Your Will must address what your intentions are for your portion of the jointly held assets and the asset you own outright. Disputes between the children of one of the partners and the left behind step-parent often arise because of the failure to leave clear and well-documented estate plans. Where you know your intentions in your Will may cause confusion or controversy, it is wise to also leave a letter or record of your thoughts and explain why you did what you did with your estate plan.  
4. It is important to know what you own outright – or what you still carry debt on.   This applies most commonly to car loans or a house with a mortgage. The Will should clearly specify whether the loan is to be paid off by the estate before ownership of the asset is transferred to the beneficiary. Of course, this assumes there are enough funds in the estate to make these payments and to then transfer absolute ownership to the beneficiary – otherwise you leave your beneficiaries with a debt that they may struggle to pay off.  

Other factors to consider

Relationship status

Marriage and divorce can have a significant impact on the validity or practicality of your Will. Similarly, being in a de facto relationship may give rise to legal implications that you need to know about. It might be awkward, but it’s important to discuss your past, current and possible future relationships with your lawyer so any implications can be considered for the distribution of your assets in your Will. 

Financial changes

 Review your estate plan if there are significant changes to your personal financial situation, for example, if you receive a large sum of money or property from an inheritance. You will need to consider whether the change to your financial situation changes your intentions for the distribution of your assets after your death. 

Provisions for dependents

Ongoing guardianship and maintenance of children is a very important part of an estate plan. If you are caring for a child, or if you are providing financial support for a child, then it’s important to think about what would happen if you were no longer around to provide this care or support. 

Philanthropy

Some people feel a strong desire to give something back to the community through gifts to charity in their Wills. There is also the option of establishing a perpetual charitable trust in the Will to get the most out of your philanthropic intentions. 

Enduring Powers of Attorney

These documents are an essential element of an estate plan as they allow you to appoint trusted people to act on your behalf if you are unable to act due to incapacity. Attorneys can be appointed to act in relation to financial matters, personal or lifestyle matters and medical treatment matters. 

It’s important to seek specialist legal advice and to review your estate planning regularly, especially if your circumstances have changed as a result of marriage, divorce or the birth of children. 

At the very least, having open and honest conversations about your personal and financial situation when going through the process of estate planning, is a must.