The Crucial Role of Estate Planning and Wills

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Article by 

Michael Clohesy

Do you know what often happens to your elderly’s financial affairs?

At a recent professional development meeting I attended, a well-known Melbourne Wills & Estates lawyer offered this comment to the attending solicitors, “When I first meet my clients, I say to them, I’m going to let you in on a little secret… you’re going to die!”

There was a roar of laughter from the group. However, the bluntness and truthfulness of his comment really grabbed my attention. Death is not something we like to think about. It is kept secret. Most of us have not really turned our minds to the consequence of our demise. It’s just too awful to consider, so we avoid thinking about it. And we subsequently don’t do anything about it.

The blunt comment made me realise that my own death is not something I really want to think about either. Would I like to be buried or cremated? Oh my goodness, neither sounds at all pleasant. I’ll just stop thinking about that little problem for the time being.

When I meet with my own Estate Planning clients, I’m usually not so blunt regarding their demise. Maybe I should be. I generally ask them something like, “When the inevitable occurs, what will be your legacy? Will you leave behind a mess for your family to stumble through, or will you provide them with a clear set of directions?”

As a Wills and Estate lawyer, I’ve seen close hand what happens when people die without a Will. All too often, I witness families brutally turning upon each other. The legacy of their parents created vicious disputes that required huge amounts of money to resolve.

There will be no more family get-togethers or Christmas lunches. The family is ripped apart forever.

It also never ceases to amaze me how often I am called into palliative care wards to draft Wills for people with a long-standing illness. They can barely hold the pen. The sicker these people get, the harder it is for them to think about their financial affairs. And the sicker these poor people get, the harder it is for their family members to raise the issue without sounding greedy or opportunistic.

Will you leave behind a mess for your family to stumble through, or will you provide them with a clear set of directions?

As a carer, it is really important that you take a little time to talk to your elderly loved ones about what their end-of-life intentions are. If they don’t have a Will, then it’s time to talk about it.

What happens when a person dies without a will?

INTESTACY – THE WILL YOU GET WHEN YOU DON’T HAVE A WILL

If you die without a Will, state laws determine who will get your financial estate. Dying without a Will is referred to by lawyers as ‘intestacy’.

Most Australian states have similar intestacy rules based on a hierarchy of family relationships. Die without a Will; the first beneficiary will generally be your spouse. However, sometimes the children can get a share as well. If you have children from different partners, then distribution starts getting complicated. And if you have an unregistered domestic partner (or more than one partner, as I have witnessed), then things start getting lively.

Real-life Scenario

Let’s say that Grandma would like to leave all of her jewellery to her favourite granddaughter Mandy and promises it to her on a visit.

Unfortunately, if Grandma dies without a Will, then the jewellery will pass to Grandpa. And if Grandpa has already passed away, then the jewellery will go to Grandma’s estranged son (even if they haven’t spoken for thirty years).

YOU NEED TO PICK THE BEST EXECUTOR

The Willmaker also needs to think about who will be in charge of sorting out the estate when the inevitable happens. This person is called an ‘Executor’. In short, they ‘execute’ your Will. That is, they ensure that the Will is sent to the Supreme Court to be validated/ proven (this is known as ’Probate’).

The executor is entrusted to collect all of the funds and shares, pay all of the bills and then pass on what’s left to the beneficiaries. I often suggest that the person who is inheriting the most money in a Will is the best choice as executor as they tend to take an active interest in what is going on.

SUPERANNUATION IS WHERE MOST OF YOUR MONEY IS

From my experience, most people don’t actually hold a lot of cash in the bank. Generally, the bulk of their wealth sits in a superannuation account (known as ‘Super’). And here is the problem when it comes to death… A Will does not tell us where all of that Super goes when you die.

The solution is a further document (known as a ‘Super Death Benefit Nomination’) that tells us where the Super goes when you die. These Nomination forms are often filled out incorrectly, which can invalidate them. The Nomination forms can also lapse after three years. Also, the Super can be heavily taxed if it goes to the wrong person.

Real-life Scenario

Let’s say Grandpa has loaned $200,000 to his son to buy a house.

He decides to leave his remaining $200,000 to his daughter but doesn’t get around to signing a Will.

When Grandpa passes away, his son and daughter will get half of his estate each (that’s $100,000 each). His daughter will be most upset as her brother gets significantly more than her.

WATCH OUT FOR CREDITORS AND PREDATORS … (AND TAX)

Is it a good idea that your child inherits a large sum on their 18th birthday? Will they invest it wisely, or will they blow the lot?

Is it a good idea that a child with substance abuse or gambling issues inherit a large lump sum?

Is your child in a shaky marriage, or are they about to go into bankruptcy?

These are all important questions to consider. If you are concerned about what will happen when your kids inherit your estate, then it might be worth considering a ‘Trust’ in your Will. A trust allows you to choose someone responsible for looking after your kid’s inheritance. The trust can ‘drip-feed’ funds to your children when they need it.

THINGS CHANGE

From experience, most of my clients do two Wills in their life. The first Will is drafted when a couple has young children, and there is a need to consider who will look after the kids if they both pass away.

The only two certainties in life are death and taxes. – BENJAMIN FRANKLIN

The second Will is drafted when the kids are grown up and are appointed as executors.

In summary, the inevitable is going to happen. A professionally drafted Will ensures that your hard-earned savings go to the right people. Leaving a Will is plainly and simply good manners.


Michael Clohesy is the National Head of Legal Services at Gathered Here. Michael can be emailed at michael@gatheredhere.com.au

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