Estate Planning

At Owen Hodge Lawyers, we regularly meet clients to discuss their estate planning needs and at times, we have consulted post-death when several complex issues and conflicting claims by parties emerge. We know for a fact that many of these expensive post-death settlements and litigation instances can be avoided if you steer clear from some of the common mistakes made in estate planning.

Failure to plan, procrastination and thinking that you are too young or not rich enough are clearly the foremost mistakes to avoid. It is estimated that over 40% of Australians die intestate (i.e. without a Will). By not writing a will, your estate will not be distributed according to your wishes, but according to probate laws.

Assuming you have a will, below are 10 common estate planning mistakes to avoid:

1. Failing to Update Your Will

Wills are written based on assumptions regarding finances, asset growth, health of persons identified to assist you and composition of the family. They are plans written today to cater for the situation of tomorrow. Many assume that once it is written, things “will fall into place”. However, by not updating your Will, you may plunge your beneficiaries, survivors and executors into a state of confusion or disruption. At Owen Hodge Lawyers, we recommend that you review your Will according to your circumstances every 3-5 years or as soon as any of the following occurs:

  • Change in your personal circumstances;
  • Change in your financial circumstances;
  • Change or restructuring in your affairs;
  • Change in your superannuation arrangements; or
  • Change in estate planning or taxation legislation.

2. Believing that Wills Avoid Probate

Wills are, in fact, designed to go through the probate process. That means that a spouse or beneficiary who was not adequately provided for in a Will, could still stake a claim or a share in the distributions. The term “adequately provided for” is important here because it is relative to the size of your estate, the degree of dependency on you and consideration of others to whom you have a financial or moral responsibility. If you intend to leave someone out specifically, you should make your intentions clear in your Will. To be able to truly avoid probate, you may need to use a revocable trust instrument, or title all of your assets to pass automatically to someone.

3. Not Considering Superannuation

Many Australians fail to realise that superannuation is a class of asset that can be protected and bequeathed upon death if properly planned for. The distribution of superannuation funds will depend on the terms of the fund, legislation or the trustee of the fund. It may thus be necessary to prepare a binding death benefit nomination to ensure that an individual’s wishes in relation to their superannuation are achieved. This is particularly so where there is a self-managed superannuation fund (“SMSF”). There are also risks associated as to HOW your superannuation death benefit is paid. Where it is paid directly to your estate rather than as a payment directly from the SMSF to a dependant, there is an increased level of risk. When planning for your family’s future, superannuation should not be forgotten as part of the process and neither should superannuation planning be done in isolation.

4. Believing Your Wishes will be “Accepted”

Many individuals believe their dependants and beneficiaries will not fight after their death and accept their wishes as sacrosanct.  Also, many wrongly assume that that as long as a person is bequeathed something in the Will, no matter how small, that person cannot contest the Will further. This is far from the truth. If for example your ex-spouse or child is financially dependent on you, they may still have a right to claim from your estate.

5. Not Understanding the Impact of Debts & Taxes

It is critical to understand that certain debts and expenses need to be paid or incurred upon your death. Being oblivious to this may mean that your beneficiaries may actually have less than you intended them to have, or worse, in some cases your beneficiaries might be made unintentionally liable for the debt you initiated. Similarly, taxes might be payable in some situations, for example capital gains tax becomes payable in the sale or disposal of certain types of property (for example a holiday home). Thus a clear understanding of debts and taxes behind your assets is important as you may think that you have distributed assets fairly by focusing only on the face value of those assets.

6. Creating a Will Lacking in Liquidity

The lack of available cash for the survivors or the executor can have a devastating impact on preserving the estate.  Many individuals assume that their business or real property can be sold to generate cash for the heirs; however, the reality is that many assets cannot be sold quickly and may be “force sold” at a value significantly below what is anticipated. This can seriously impact your precious hard-earned assets or cause you to lose control of your family business or legacy.

7. Bequeathing Assets Not Owned

Many fail to understand the impact of bequeathing assets which are either held jointly with rights of survivorship, under a family trust instrument, by a company or a partnership. Thus if assets are not “fully owned” by you, they can automatically transfer to someone else named under the title even if that transfer is in contradiction to your express wishes in a Will.

8. Poor Choice of Executor

Naming the wrong person to administer your estate can be disastrous. The chosen appointee must be able to, (a) collect all assets, (b) pay all obligations and (c) distribute the remaining assets to beneficiaries. There are two aspects to making an error with Executor appointments. One is where you appoint a beneficiary as an executor. Such appointments may potentially give rise to conflicts of interest. The other is where you choose someone who is incompetent, unorganized, dishonest or biased to carry out your estate administration. Keep in mind that appointing an Executor is not a favour or privilege bestowed on a friend or relative, but a very important responsibility which can be demanding, and at times, frustrating.

9. Executors with Inadequate Powers

It is pointless to appoint an executor if you do not give them the corresponding powers to carry out your wishes. This might include granting them the power to sell and dispose assets, make investments decisions on your behalf and on behalf of your minors and be able to take any other relevant decisions pertinent to the role. If sufficient powers are not granted, the executor may be compelled to make costly court applications to get approvals for what may seem trivial and logical matters.

10. Not Using Professionals

The failure to use professionals will increase the potential for future problems. “Do it yourself” kits or personally prepared documents may leave your Will with several ambiguities and you may just end up signing a document that is not enforceable. Surprisingly, instances of testators using beneficiaries or their spouses to witness a Will is still commonplace and makes the Will instantly void. The cost of hiring a professional is much less than the cost of a mistake or dispute in the future.

The list above is not exhaustive as there are several other mistakes that can potentially jeopardize any estate planning objectives you have. We can advise you on how to avoid the full range of pitfalls that can cost your estate thousands of dollars. Call us today at 1 800 770 780 or contact us via email at ohl@owenhodge.com.au to schedule a free consultation with our team of estate planning lawyers. We look forward to assisting you.