Estate planning myths debunked.
Debunking 6 Bizarre Estate Planning Myths: Because you need to know the truth!
In summary – Irrespective of your situation, having an estate plan is essential.
Many individuals are unaware of the necessity of having an up-to-date estate plan and addressing aspects like superannuation that fall outside the scope of a Will.
Some aren’t even aware of what an estate plan is. Briefly it is your plan to deal with your assets, children and your body after you pass.
Misunderstandings surrounding estate planning are widespread.
Estate planning holds significance for everyone, regardless of age or financial status. Our individual circumstances vary, and sometimes, this necessitates innovative and creative planning.
In my role as a professional in the field of estate planning, I frequently encounter certain prevalent misconceptions held by my clients regarding the distribution of their assets, money, and property once they pass away.
This article aims to clarify these misconceptions and unveil the truth behind commonly held estate planning myths.
Only the elderly requires an estate plan – FALSE!
Everyone, regardless of their age, level of income, level of business expertise, or other characteristics, should consider and implement an estate plan.
Your estate plan doesn’t have to be very difficult. It does, however, need to be comprehensive. It must consider your unique circumstances, including your family and business arrangements, assets and debts, superannuation, and, of course, your preferences about the administration of your personal estate after your passing.
I only need to create an estate plan once – TRUE but…!
Estate planning should evolve with life’s changes. It’s crucial to revisit your estate plan every few years to ensure it aligns with your current circumstances.
Various factors can impact your estate plan, including:
- Marriage: Recent marriages can affect existing Wills and you will need to consider your new spouse in your plan.
- Asset sales or devaluation: Selling a significant asset can affect your plan, potentially leading to unequal distributions.
- New beneficiaries: If you have new family members, your estate plan will need updating.
A Will won’t do anything other than transfer your assets after death – FALSE!
In addition to passing assets to your selected beneficiaries, creating a unique estate plan can help you accomplish other objectives. Here are two instances:
Safeguarding the Future of Minor Children:
Meet Bob, a 30-year-old married man with a young son. He and his wife own their home with a mortgage, and they have a car fully paid off. Bob’s financial situation is relatively uncomplicated, so he opts for a straightforward Will, leaving his entire estate to his wife in the event of his passing. However, Bob also includes a crucial guardianship clause in his Will, explicitly naming the individual he wants to serve as the guardian for his child, as well as any potential future children. Bob’s wife prepares a similar Will. While their wealth may not be substantial, the primary objective of their estate plans is to designate a guardian for their children should the unforeseen occur.
Establishing a Testamentary Trust for Vulnerable Beneficiaries:
Consider John, a 55-year-old widower with an adult daughter who has struggled with gambling issues and a susceptibility to substance abuse. John is determined to ensure that his estate benefits his daughter, but he is concerned that she might quickly deplete the funds if given direct access. Seeking professional guidance, he decides to create a testamentary trust, appointing a close personal friend as the trustee. This trustee’s primary responsibility is to ensure that, after John’s passing, his daughter’s financial needs are met while also safeguarding the capital that constitutes the estate for her long-term well-being. If the trust is administered according to John’s intentions, it will provide his daughter with ongoing financial security.
These case studies vividly illustrate that estate plans can serve a wide range of objectives beyond the mere distribution of assets following one’s demise.
Challenges to your Will can arise posthumously – TRUE!
If your Will doesn’t adequately provide for certain beneficiaries like dependents or a spouse, they can petition the court for additional provisions from your estate.
The specific rules and procedures for such applications may vary by state, so consulting with a specialist is recommended.
However, universally, it’s essential to factor in your immediate family’s needs and ensure your estate plan addresses them to reduce the risk of challenges.
All I need is a Will; it takes care of everything – FALSE!
Your Will won’t cover every aspect of your personal property. There are some components of your personal estate that are not covered by your Will and are not subject to its provisions.
Superannuation is only one illustration of the many items that are not covered by a Will. Everyone has it, but a lot of people don’t know that they need to act (apart from creating a Will) to guarantee that their superannuation claim is distributed to the individuals they want when they pass away.
This widespread misperception is alarming when we consider that a large amount of our personal wealth is held in our super funds.
Testamentary trusts are exclusively for the extremely affluent – FALSE!
Testamentary trusts serve as an excellent method for distributing your assets after your passing, and they are not limited to the wealthy alone. Some advantages of utilizing testamentary trusts encompass:
- Their effectiveness in scenarios involving blended families.
- The potential for tax advantages through distributions from testamentary trusts.
- Their suitability when dealing with beneficiaries who exhibit high-risk behavior or have disabilities, necessitating the oversight of assets or funds by a trustee (as demonstrated in the case study above).
Regularly reviewing your estate plan is essential to account for these changes and ensure your wishes are upheld after your passing.
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This is commentary published by HazeLegal for general information purposes only. This is not meant to be taken as particular advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, or alternatively get in touch with the writer at http://hazelegal.com.au before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories.
© HazeLegal, Australia 2023.