Succession Planning

Five new year’s resolutions for your family

Survived the silly season, have we? Great. And made some new year’s resolutions? Even better.

But just how important, useful and practical are those resolutions? Are they about giving up some personal vice, losing weight, exercising more and anything else you’re going to try out for a few weeks then give up on, only to revisit out of guilt next time around? Hmmm.

Let’s add some real new year’s resolutions to the list – ones you can get some professional help for to make sure they happen and which, if they do get done, will be something your family and loved ones will thank you for, indeed thank you for long after you’re gone and/or long after you even remember you made them.

I’m talking about five things you can do for your family as part of your resolutions that will protect them from suffering stress and hassle at the worst possible time, can protect them from their own creditors and ex-spouses, and even protect them from paying too much tax. Yes, I’m talking about the five essential things you need to put into place to have a comprehensive personal estate plan.

Firstly, a will, and I don’t mean a dodgy DIY job from a newsagent or bookstore or el cheapo website, or a ‘one pager’ hurriedly put together by your garden variety (but friendly) neighbourhoodgeneralist solicitor. I mean one that comprehensively deals with your estate assets, which (with the benefit of proper professional advice) appropriately provides for your immediate family, as well as deals with the sensitive issue of who should benefit if your own family members do not survive you, and appoints the right people to administer your estate, look after minor children if both their parents aren’t around, and ensures your executors have sufficient powers to do whatever needs to be done with the maintenance and distribution of your estate in accordance with your instructions.

Better still, if you have or hope to have children and perhaps also further descendants down the track, your will should incorporate so-called testamentary discretionary trusts in order to provide flexibility of dealing with income and assets to take account of changing circumstances, protection of the assets of the trust (which are your family’s inheritance) from financial or personal crises that may befall your family members, and also provide the potential to save your family and future descendants a very significant amount of tax – every year for generations – by virtue of being able to split the income of the trust over a number of potential beneficiaries, as well as take advantage of extremely concessional tax treatment of trust income distributed to minor beneficiaries of the trust.

But what happens if you don’t actually die and you just lose your marbles instead? Who’s going to look after your financial affairs to help make sure your family’s bills get paid and to make decisions regarding your investment assets? So the second thing you need to do for your family is to put into place an enduring power of attorney that appoints one or more trusted people to be able to make decisions about and to deal with your financial assets even if you have lost mental capacity due to an accident, stroke or dementia.

However, an enduring attorney does not have the power to deal with important non-financial decisions for you, such as deciding on what medical treatment you should have, which doctors and dentists you should see, where you should live and so forth. In order to prevent family disputes over such matters, you also need to appoint (as the third thing you need to do) one or more people to be your enduring guardians to make and implement such decisions for you.

Now, we mustn’t forget about an increasingly important type of asset that actually is not automatically covered by your will when you die, and (depending on the relevant legal documentation in place) may not be able to be dealt with by your enduring attorney. That asset is your superannuation, which is held by a separate trust being a superannuation fund, the trustee of which can decide in their discretion what to do with your superannuation in the event of your death,unless you tell the trustee otherwise. So the fourth thing you can do for your family is to make a binding death benefit nomination that tells the trustee of the fund to whom you want your superannuation death benefit to be paid and in what form (lump sum, pension or a combination of the two).

Having done all that, the last thing you want to have is a situation where in 10, 20 or 30 years’ time on your incapacity or death, your family is confronted with a bewildering set of legal documents (in particular, a will that spans many pages and has lots of legalese – and maybe the odd Latin word thrown in for good measure) and they go “What the…?” The fifth thing you can do for your family is to give them a bit of a roadmap for it all – something we lawyers often call a memorandum of wishes, which sets out your non-binding wishes or instructions about your estate planning needs and objectives to help provide useful guidance to your executors and/or appointed attorneys and guardians regarding what the various documents are and what they are for, why you put them in place, and how to best use them (and ideally which advisers to go to for up-to-date legal, taxation and financial advice). This is not strictly a legal document and is best expressed in non-legal language anyway. You can prepare it yourself (a letter of wishes), but it’s probably a good idea to have the lawyer who prepared the other documents for you run their eye over it to make sure it is in accordance with how the other documents actually work.

So there you have it: the five things you can do for your family as part of your new year’s resolutions that can make a real difference to their mental and financial well-being should you at some future time lose your marbles or kick the bucket. And if either event should occur, you can rest assured your family will thank you for doing those five things.

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