The 6 biggest estate planning mistakes people make
If you’re thinking about estate planning, that probably means you should have already started it. Yes, it’s one of life’s most procrastination-inducing admin tasks. And yet it’s some of the most important future-proofing you can ever do. So take the bull by the horns, avoid these common mistakes and set off on the right path by including this in your downsizing plan.
Mistake #1: Not having a will
You might think it’s like having ‘password’ for your password: how could anyone be so stupid?! Or maybe you’re shrinking in your seat, mentally adding ‘write that bloody will!’ to your to-do list for the one millionth time…
You’re not alone. Nearly half of Australians die without a will, despite probably knowing better. When you die ‘intestate’ your assets are distributed by the state according to a rigid formula based on lines of kinship, rarely mirrored in our beautifully messy lives. It can place a great deal of strain on loved ones, and it can result in your assets going somewhere that you didn’t want them to go.
It may not seem like one of life’s sunniest tasks, but it’s a fundamental part of planning for your future and doing it will give you a sense of control and comfort. If you haven’t done it: stop procrastinating. If you have, well done. But you’re not quite done yet…
Mistake #2: Not keeping the will up to date
You shouldn’t look at your will as a one-time thing. Life is forever in flux – whether that’s in business, in love, or in outlook. Relationships change, markets move, properties are bought and sold. Your estate planning needs to reflect your wishes and assets now – not as they were 10 or 15 years ago.
Divorce, remarriage, or welcoming grandchildren or stepchildren into your life may mean a difference in your beneficiaries. Marriage usually revokes previous wills, so you’ll want to ensure that you specify how any children from previous relationships are provided for. If you’re in a de facto relationship, you’ll want to make sure your partner is recognised.
You may decide to sell the family home and downsize , rearrange your investments, set up a family trust – all these changes should be reflected in your will.
Mistake #3: Leaving out superannuation
Surprise! Your superannuation is not automatically dealt with by your will; provision for super assets needs to be made separately. You need to nominate in writing with your super fund who your super balance and any life insurance is paid out to.
Without this type of nomination, your super fund could use its discretion to choose which of your beneficiaries receives your death benefit – and it may not be consistent with your wishes for your estate. So make sure you’ve done the necessary paperwork. Sure, it’s Dullsville; but not as dull as a contested will after you’ve turned up your toes.
No one’s arguing downsizing can sometimes be a confronting experience. It needs to be done at a pace you’re comfortable with, and when it is, many people are growing to find that downsizing your home and life is something to look forward to, plan and ultimately enjoy when the time comes.
Our real estate partners, Barry Plant can help you start to look into the downsizing process with no obligation or commitment to sell. If you’re curious about what your home could be worth, submit your application for a FREE, no obligation market appraisal.
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Mistake #4: Not being across the tax implications
Speaking of dull, the way you distribute your assets could have tax implications, including Capital Gains Tax (CGT), and you may unwittingly land your beneficiaries with a hefty tax bill if you don’t take this into account. There are ways to manage tax impacts; for example, a CGT liability can be deferred if the beneficiary is given an asset (such as a house) rather than the proceeds from its sale.
To understand and plan for these impacts, start thinking early about your estate planning and take steps to ensure that your assets are arranged in the way that you want them to be.
Mistake #5: Forgetting about YOU!
While most people think of estate planning as setting down what they want to happen after they’ve gone, it’s just as important to go on the record about what you want while you’re still around! Aside from your will, there are several other vital pieces to the estate planning puzzle.
Powers of attorney enable you to nominate someone to make decisions on your behalf, if you lose the capacity to do so. An enduring power of attorney covers financial and legal decisions; medical power of attorney is only for medical decisions. An enduring power of guardianship covers decisions about where you live, medical care and other lifestyle choices.
To enable you to direct this decision-making process, you can make an anticipatory direction, which records your wishes about medical treatment in the future, in case you become unable to express them yourself. And an advance healthcare directive (or living will) sets out what should happen if you’re unable to make medical decisions, and what you’d like to happen after you die.
This documentation is just as much about securing peace of mind for your loved ones, as it is about you. When it gets to the pointy end, they’ll be much more at peace knowing that they are acting in accordance with your wishes, rather than guessing at them. Which leads to…
Mistake #6: Not talking
Part of this process of estate planning – perhaps the most important part – is discussing your wishes with your loved ones. Opening the door to this conversation can be enriching, and enlightening. And, it will make things a lot easier and less painful down the track.
Make sure you let your executor and family know that your papers are in order and where to find them. Write a list and hand it over. And then get on with the rest of your life!
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