Why Estate Planning? - Lexica
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Why Estate Planning?

An overview of this highly important and often overlooked service

 

Why Estate Planning?

An overview of this highly important and often overlooked service

 

"An estimated 70% of all family legal disputes occur between adult children contesting Wills, causing families to fall apart."

The elegantly simple Estate Planning Online Software for professional advisors

Estate planning protects Assets & Families

Taking care of your loved ones means looking out not just for their financial needs, but their relationships as well. With the vast majority of family legal disputes centred around contesting wills, it’s important to consider an estate plan.

Having an estate plan will minimise the likelihood of beneficiaries contesting your financial wishes and thereby coming into conflict with each other. Your forward-planning now will help protect both your asset distribution and your family’s relationships. With Lexica and your professional advisor, developing an estate plan is now a seamless process.

What is the difference between a Will and and Estate Plan Will?

 

What is the difference between a Will and and Estate Plan Will?

 

Basic Wills VS. Estate Plan Wills

There are many reasons why a basic will is inadequate for most people’s circumstances.

 

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Features Basic Will Estate Plan Will
Asset Protection
Tax Benefits
Contestability

Very High

Very Low

Sufficiency
Wealth Control
Immediate Trust
Income Splitting
Asset Succession
Guardianship (-18 years)
Probate
Income Stream

Basic Wills Vs. Estate Wills

There are many reasons why a basic will is inadequate for most people’s circumstances.

preloder
Features Basic Will Estate Plan Will
Asset Protection
Tax Benefits
Contestability

Very High

Very Low

Sufficiency
Wealth Control
Immediate Trust
Income Splitting
Asset Succession
Guardianship (-18 years)
Probate
Income Stream

Estate Plan Wills cover:

   Superannuation

   Asset distribution

   Split income

   Taxation benefits

   Asset protection

   Testamentary Trust Will.

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Frequently Asked Questions

 

1. Does my will really need to include a testamentary guardian to look after my young children?

If you have young children and a partner, you may think it’s unnecessary to include a testamentary guardian – after all, if something happened to you, your partner would be there to care for the children. However, as unpleasant as it may be to think about, there are occasionally events where both parents are tragically killed or die at about the same time. Your first duty as a parent is to provide for your children, so you should consider this risk – however small – and include a guardian in your will.

2. How should I choose a guardian?

In selecting a guardian, you should not choose your own parents – there is a risk that your children will face another death of a ‘parent’ sooner, as your parents are significantly older than you. Clearly, if they are living under your parents’ full-time care, this will be far more traumatic for them than losing a grandparent. Instead, you should choose a friend or sibling of the same generation and approximate age as you to be the guardian.

3. What is a ‘tragedy clause’ and why have I not heard of it before?

Tragic circumstances such as the loss multiple family members at once are, fortunately, quite rare. However, they do happen (as the news bulletins attest). Whether by car accident, plane crash, or other freak accident, they can cause unimaginable pain for families. The default in these circumstances is for the entire estate to pass to the younger (in age of husband and wife) surviving and then down the family tree if not surviving. This can be somewhat of a lottery, but with a tragedy clause, you are able to choose – generally, this entails half going to your parents and half going to your spouse/partner’s parents. You may add additional aspects including charitable gifts and gifts to friends and other family.

4. Do I really need a lawyer to write my Will?

You do not need a lawyer to write your own Will, however it is likely that it will be more easily contested if it does not comply with the provisions of the Succession Act 2006. If that is the case, the cost for the Court to properly construct your Will could exceed $40,000 – a waste of your estate and an additional emotional burden to your beneficiaries (particularly if it creates a dispute between them, as often happens).

5. I’m healthy – can’t I leave my Will it until I’m older?

Of course, you can write your Will at any point later – unless something unexpected happens before then. One of the main reasons for having a Will is to prepare for the unexpected, so delaying it risks that you will die ‘intestate’ (without a will) and place a heavy administrative and emotional burden on those you leave behind.

6. What is a Testamentary Trust Will (TTW) and why would I need one?

A TTW is much longer and more detailed than a standard Will because it includes detailed trusts and variations of those trusts. Broadly speaking, a trust is a vehicle used to allow the holding and distribution of assets (finances) via an authorised party, usually in a manner than minimises tax for the recipients (beneficiaries). A TTW provides flexibility so that an executor or executors can make variations as necessary after death.

There are two important potential advantages to having a Testamentary Trust Will (TTW): asset protection, and tax minimisation for the beneficiaries. In each case, they prevent erosion of your estate by third parties including in-laws or additional children your spouse/partner may share with another person (and, in the case of taxation, the government).

However, wills are not solely about money. Testamentary Trust Wills (TTW) can have special purposes, such as setting out the manner in which you would like your children taken care of, especially in the case of a vulnerable child. A TTW allows you to create provisions that can assist where a child may be bankrupt or facing bankruptcy, or be drug addicted, or similar. Having strong trustees over your estate can be of substantial benefit in preserving your child’s inheritance.

7. How does a TTW work, and is it expensive to administer?

In general terms, a TTW works by allowing an executor to control the distribution of assets to the beneficiaries in a way that is pursuant to your wishes and the most advantageous from a tax perspective. For example, this may include administering annual amounts rather than a lump sum, and dividing the amounts between an adult child and their spouse.

If you have an accountant, they will be used to administering trusts – and if you have a trust of another kind, you may be aware of the associated fees. In general, trusts are used because the benefits outweigh the costs. Depending on the size of your estate, distributing your assets to your beneficiaries via a TTW may provide them with significantly greater net benefit. Your advisor can provide you with a more detailed assessment of cost/benefit for your particular circumstances.

8. Can I just go to the NSW Trustee & Guardian to access their cheaper document templates?

Of course, you are free to do this. However, the upfront saving may come at a greater cost later. For instance, on grant of probate, their fees are typically two or three times higher than what a solicitor would charge. Additionally, they are unlikely to be as committed in the administration of your estate versus your spouse, friend, or solicitor whom you trust.

9. What are the tax benefits you have referred to?

There are several key provisions in tax legislation that allow for tax minimisation via an Estate Plan. For instance, Section 102AG of the Income Tax Assessment Act 1936 provides for greatly reduced tax assessments for infant children. This means income distributed to an infant beneficiary is assessed at full adult concessional rates – at current figures, the low tax threshold means that any infant child can receive up to $24,000 tax-free. Capital gains tax can be similarly distributed. Of course, distributions in excess of $24,000 are assessed at adult concessional rates. This section also allows for certain other death income to be similarly taxed – not only is it completely legal, it is specifically provided for in the Act. By contrast, if income were distributed from a discretionary trust or other income source, only about $400 would be tax-free and then there would be penalty rates.

An example of section 102 AG in operation is as follows:

Bill passed away at age 49, leaving the whole of his estate to his wife Julie. Fortunately, it was left on testamentary trust. Bill and Julie owned their own house jointly. They had four children who were infants. The house passed to Julie automatically; in the trust there was also about $2 million from insurance and some shares. Julie paid out the medium-sized mortgage on the house, leaving about $1.6 million in the trust. The income earned on this, with the help of a good Financial Planner, was approximately 6% per annum – or $96,000 after costs. From this and the principal,  approximately $24,000 was distributed to each child at nil tax per year. Julie was able to spend this amount on the education, health, and living expenses of each child. She was also able to then increase her contribution to her own superannuation fund to the maximum allowable, providing further tax benefits.

10. But I already have a Testamentary Trust Will and a Family trust...

Congratulations – you are well ahead of many people. However, it is important that you keep these current and ensure that they best suit your current situation. All too often, people do not update their Wills as their circumstances change. Additionally, there are often gaps when compared to what may be created by a quality Estate Planning specialist lawyer. It is suggested you have yours reviewed – and if no changes are required, you will simply be advised of this.

Estate Planning is the only way to secure your familie's future.

 

The 4 Main Reasons Why People Put Off Estate Planning

 

Most Australians realise that wills and estate plans are important, even if it takes a critical event to highlight this. However, less than half the adult Australian population has a will, and only a small percentage of these have an estate plan. Here are three main reasons why people put off doing what they know needs to be done.

1. People don't like to think about dying

It’s not a pleasant thought, but it is inevitable – and you need to give it some thought for the sake of your family. Spending a small amount of time thinking about this now means you can relax knowing that your family will be looked after according to your wishes.

2. They think estate plans are only for wealthy people

Whilst it’s true that wealthy people are more likely to have an estate plan in place, anyone with assets can benefit from having an estate plan. Put simply, an estate plan ensures those assets go directly to your family without going to probate. In that regard, it’s far more reliable than a basic w

3. It never seems urgent

People generally treat wills and estate plans as something to be done later – whenever ‘later’ is. Unfortunately, that is sometimes too late. Many financial planners recommend their clients to take out this type of protection, but only a very small percentage of people follow through on this advice. While it may not feel urgent, it is important and should be given due priority to ensure your family’s protection.

4. They think it will take too long

Putting off the task is often what makes it take the longest. But once your estate plan is underway – particularly when powered by Lexica – it doesn’t have to take long at all. You will be guided through each step by a combination of clever technology and proactive specialists.

The 4 Main Reasons Why People Put Off Estate Planning

 

Most Australians realise that wills and estate plans are important, even if it takes a critical event to highlight this. However, less than half the adult Australian population has a will, and only a small percentage of these have an estate plan. Here are three main reasons why people put off doing what they know needs to be done.

1. People don't like to think about dying

It’s not a pleasant thought, but it is inevitable – and you need to give it some thought for the sake of your family. Spending a small amount of time thinking about this now means you can relax knowing that your family will be looked after according to your wishes.

2. They Think Estate Plans are Only for Wealthy People

Whilst it’s true that wealthy people are more likely to have an estate plan in place, anyone with assets can benefit from having an estate plan. Put simply, an estate plan ensures those assets go directly to your family without going to probate. In that regard, it’s far more reliable than a basic w

3. It Never Seems Urgent

People generally treat wills and estate plans as something to be done later – whenever ‘later’ is. Unfortunately, that is sometimes too late. Many financial planners recommend their clients to take out this type of protection, but only a very small percentage of people follow through on this advice. While it may not feel urgent, it is important and should be given due priority to ensure your family’s protection.

4. They Think it Will Take Too Long

Putting off the task is often what makes it take the longest. But once your estate plan is underway – particularly when powered by Lexica – it doesn’t have to take long at all. You will be guided through each step by a combination of clever technology and proactive specialists.

Keeping up-to-date

Do you already have an estate plan? Then you’ve taken an important step towards protecting your family’s assets and relationships. However, it’s important that you regularly review the plan as your circumstances change. Your professional advisor and Lexica can help you review your current estate plan and determine any changes that may need to be made.

Our Estate Planning brochure
provides more details

For more information or a takeaway to discuss with your partner, family, or advisor, we invite you to download our ‘Estate Planning: Explained Simply’ brochure. We also recommend you talk to your chosen professional advisor, who will be able to answer any questions you may have.