Most people don’t like to talk about their mortality and, as a result, most people ignore their estate planning needs. But this is a very important subject and, if you are over the age of 18, you really need to start on your estate plan.
Put simply, an estate plan is your instructions as to what happens with your assets if you pass away or become unable to make decisions for yourself. To have a comprehensive estate plan in place you need to consider a number of different elements and this can be a very complex area of advice, particularly if your situation is a little complicated.
Today I am going to be looking at one aspect of estate planning and that is the will. In future I will cover off other areas including testamentary trusts, enduring powers of attorney, enduring powers of guardianship and nomination of beneficiaries.
Most people know what a will is – it’s a way to ensure that your assets are distributed to your preferred person(s) in the event you were to pass away. Wills can cover things like:
- Who receives your assets;
- Who will care for minor children;
- Funeral plans;
- Donations to charity; and
- The establishment of trusts.
When drafting a will there will be a few technical terms that come up which you need to have an understanding of. The key terms are as follows:
- Beneficiary – the person(s) who will be receiving an inheritance
- Estate – the assets you own at time of death
- Executor – the person(s) named responsible for winding up the affairs of a deceased person.
- Guardian – the person(s) named to care for minor children.
- Probate – the document by which the court recognises the authority of an executor to act under a will.
- Spouse – a husband or wife, a person in a civil partnership or a de-facto partner.
- Testator – the person who makes a will.
When it comes to drafting your will there are essentially two ways you can do it. The most cost-effective way is to draft it yourself. You can get a DIY will kit for roughly $32 and it comes with a template and instructions to write up your own document.
Before going down the DIY will path, you should be willing to put time and effort into preparing your will properly. You should read and follow the instructions that come with the will kit. If you do not execute your will properly, there is a good chance it will be deemed invalid.
If your situation is a little more complex, or you simply just don’t trust yourself to write the will, then you can get professional help. There are many estate planning companies which draft wills for you, some even allow you to do your will online. There is also a public trustee in every state which is a government run estate planning agency who typically offer reasonable rates.
Technically speaking, you can make your will as detailed as you like. For instance, I want aunty Betty to receive my diamond ring and uncle Billy to receive my gold watch. But this is often not the best idea. Where possible, I always advise people to keep their wills as simple as possible.
The more complex your will is the more costly it can be to draft and the higher the chance the will can be deemed invalid. So therefore, a simple will is the best kind of will. However, there are certain circumstances where a more complex will is appropriate and this is often due to additional complexity in your financial situation.
If you have been through a divorce, have children with different partners, operate a business, hold assets in a trust or company, then these are all examples of a more complex situation. If you fall under one of these categories, then I would strongly suggest you seek advice from an estate planning specialist.
Once you have a valid will you need to store the original safely. This can be at your home, preferably in a safe or locked cabinet, or you can also pay to have it stored by your attorney. If you do store your will in a safe or locked place, make sure someone trustworthy can access it should something happen to you!
While wills don’t have an expiration date, it is important that you review your will regularly. You should look to review your will at major life events to ensure it remains relevant. Some examples of when you should review your will include:
- Marriage
- Birth of a new family member
- Significant changes to assets
- Divorce or separation
- Death of a beneficiary
- Moving to a new state or territory
- If a named person is unable or unwilling to act
If you do create a new will, this will supersede your old will and the new will would normally state something along the lines of “I hereby revoke all previous wills and codicils”.
If you fail to write a will, and you pass away, you are said to die intestate. Under this scenario, your estate will be distributed in accordance with the rules of intestacy. Each state and territory has their own set of intestacy rules. However, you should not rely on the rules of intestacy to distribute your estate as the assets might not go to your preferred beneficiary and the costs involved with intestacy can be significant.
As a side note, if property is owned jointly with another person, then it does not form part of your will. Ownership will automatically be transferred to the surviving owner upon death. If you have a valid beneficiary nomination on your super fund or life insurance then chances are this also will not form part of your will as the death benefit will bypass the will and be paid directly to the named beneficiary. So in summary, wills are very important. Even if you have very little assets, you should still get yourself a basic will done to avoid unnecessary cost and complexity that comes with passing away intestate.
