Topic Twelve: Estate Planning

Retirement is a significant life event and an important time to review your estate planning documents to ensure they are up to date and in line with your changed circumstances and wishes. In this episode we look at some of the key documents you might want to put in place to cover estate planning including POAs, will, testamentary trusts and how superannuation/life insurance and joint assets could need separate arrangements.

Action plan:

1)       Consider putting an EPOA in place now to cover any unplanned need for financial and/or health decisions to be made on your behalf or review your existing ones;

2)       Check your superannuation and/or life insurance accounts have valid beneficiary nominations;

3)       Make a will and/or check it is up to date;

4)       Consider an Advanced Health Directive if health decisions are important to you;

5)       Consider Testamentary Trusts and potentially other specialist estate planning vehicles if you have very specific concerns about the distribution of your assets on passing;

6)       Have a family discussion about your estate planning wishes;

7)       Clean out the filing cabinet and make sure a list of all your assets, liabilities, income streams and personal belongings that you wish to pass on are clearly identifiable and accessible.

8) Get professional advice from both a financial adviser and an estate planning legal expert.

Transcript

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Okay, welcome everybody. This is the final topic in our series for the retirement school, and today we're going to be talking about estate planning. So all things wills, related documents, and your super. And I maybe shouldn't have left it till last because it is a really important consideration given that retirement is a significant life event, and that is at that time. So whether it's buying a house, having a child, getting a mortgage, retirement is on that list as to when you need to make sure that you've got your estate planning in good order so that you can look after not only your financial future in some cases, in terms of if you have specific wishes, but also and most importantly, looking after your family. So once again, estate planning can be a really complex area. So I'm going to talk about general concepts around estate planning, but it is very worthwhile getting specialist advice, talk to a financial advisor in terms of how it might impact the financial assets that you own. But also, you really need an estate planning legal specialist to draft up these documents. So I'm going to talk at a high level about some of the documents you might consider putting in place and some other actions you can take. And we're going to kick off with enduring power of attorneys or EPOAs for short. Now, this might be a term you're familiar with, generally just called power of attorneys. And there's a lot of confusion about it though. An EPOA is simply an authority for someone to act on your behalf to make financial andor health decisions while you are still living. It doesn't have any effect once you've passed away. So this is a living document and it can be useful for a range of circumstances, not just when you are potentially in ill health. So obviously, health issues is one because you never know when that could take a turn for the worse. But even say if you're planning on travelling overseas andor to remote areas, which a lot of retirees like to do, you may not be contactable to make a decision that has some urgency to it, for example, a home repair after a natural disaster or a withdrawal of funds because you need them for an emergency while you're traveling. It can also be good to have someone to act on your behalf if there's a loss in your family or a mental health issue or something like that, where and you're just not confident talking financial or health matters, and you want somebody by your side who can interpret and help you to make decisions if that's what you're more comfortable with. So a power of attorney needs to be valid in its completion. It is a legal document, it's legally binding, and you generally most places are still looking for that original hard copy, which has to be witnessed and certified. So you're going to need additional copies for use at financial institutions. For example, if you were to enter an aged care home, it will no doubt be a requirement of theirs that there is a valid power of attorney in place because if you aren't able to speak for yourself, they need to have the next best person to go to to organise and potentially make decisions for you. Now you can give a power of attorney to just one person or multiple people. There are pros and cons of one person versus multiple. Appointing a single person who is really capable, doesn't get overwhelmed when making decisions, means that they can be made quickly. If you appoint multiple people, you then they will then need to consult with each other and agree on a course of action. And you may need a deal breaker in terms of whether they have to act jointly or there's a majority or there's some way sort of to break disagreement between multiple power of attorneys. In the end of the day, though, it can cause delays or inaction. So people struggle with who to appoint as an a power of attorney, and some people sort of view it like making a choice of their favourite child or sibling, and it can also be a source of conflict in families because the children can view it that way. So I want to say here that a power of attorney can only act in your interests and not their own. This is actually a legal requirement, and it can result in penalties and even in extreme circumstances in jail time if a power of attorney does the wrong thing by taking advantage of this authority for their own gain. It is literally designed to help you with decision making and taking action if you are incapacitated in some way, generally temporarily, sometimes maybe permanently. So sit down, have a chat with your family and your solicitor about the best option for appointing a power of attorney and where they should be kept and how they can act so that you have some comfort in having this backup document in place should you need it. Now, super, I'm going to talk about next because this is another area of real misconception. Super does not come under your will, it is a separate financial instrument, and the distribution of any benefits is the responsibility of the super trustee. So for the big super funds, that's obviously the trustee is going to be them. If you have your own self-managed super fund, it does become problematic if you are one of the trustees and something was to happen to you or you would have pass away. And this is something to talk to a financial advisor/slash solicitor about what the backup plan is to have someone who can act on your behalf or who can arrange matters after your passing. Now the fact that it is a separate financial instrument is very similar with life insurance and things like investment bonds as well that we talked about in topic five. So you've got to be careful here because if you give super to one member of the family and then there's a different asset for another member of the family, they may not be the same, they may receive benefits at different times. There could be different taxation consequences. So simply saying I'll deal with super under my will, there is a special way to do that, and we'll talk about this next. But firstly, the trustee can receive direction from you as to how you would like your super funds distributed, and this is done via a beneficiary nomination. There are three types of nominations there's binding, non-binding, sometimes called preferred, and a reversionary nomination. Now, binding as the name suggests means that the trustee in most cases will be bound to follow your instructions. It can result in the fastest distribution of funds, and so if that's important to you because you want continuity of payments, etc., but it must be valid and it has a number of components. So simply putting it in place and forgetting about it is not going to work if you want to ensure that that binding nomination stays in place, and that's because the nomination can expire. So if you have your own super fund, you can nominate for it never to expire. But the large super funds will generally put an expiry date that can range anywhere from a year to five years, ten years, etc., because they want to make sure that it's updated regularly so that it reflects your current circumstances. Usually the super funds will give you a reminder to tell you that it's um that it needs renewing. If you let it lapse and you don't renew it, you go back then to the trustee having discretion about the funds. So the other issue is that under superannuation law, only certain people can be nominated as valid beneficiaries. Now they generally include your immediate family, spouse, and children, including adult children and other financial dependents. But if there's a person or an organization you want to nominate to receive some of your super and they aren't considered a valid beneficiary, you do have this option that I spoke about before where it could be handled by your will by putting in place a binding beneficiary to your executor or nominated legal representative. That then gets paid to the estate on your passing and gets considered with the other assets. So you need to understand that part by talking to a solicitor as well. But most importantly, the process can be time consuming, it can mean delays for your beneficiaries receiving fund, and this delay can also open it up to legal challenges. So people coming in and saying they think they should have a share of your super, and of course, ultimately how it is handled may not be the way that you wanted it to be met. So I'd encourage you to understand what's involved in putting a binding nomination in place for your super, speak to your financial advisor, speak to your solicitor. But one of the places that people fall down the most is that because these nominations are a legal document, everything needs to be correct and match up. So you've got to have the right account number, the right names, spelling of names, the right address, the signatures, the witnesses, everything has to be valid on this form. And if it's not, even the smallest mistakes can result in a lot of tooing and frowing. I can't tell you how many times I've seen people with middle names on their super account, but they're not on the nomination form. So that sort of silly thing can really trip you up, and then people forget about it, don't follow up, put it to one side, and you're stuck then with no nomination in place for your super. Now, the last type of nomination that you could consider with your super is a reversionary nomination. This is only available on income accounts and it is designed really for continuity of income being paid. So if you're married and you want to ensure that your spouse continues to receive pension payments if you pass, then a reversionary may be something that is worth looking at. If you have an income account and super held in accumulation accounts or other income accounts, you may have a different beneficiary process there. You may have to use a binding nomination. So once again, talk to your super fund, talk to your financial advisor, talk to your solicitor. But I will note that super funds can't give advice on who to nominate as a beneficiary. They'll probably give you a fact sheet. Even if you have a financial advice appointment with the super fund, it is a solicitor that you need to go and talk to about which one would be best for you. Now, onto the will. Most people know what a will is, and many people already have one, and some people might think, my situation's pretty straightforward. I don't really need a will. It's rarely the case. Here are some reasons why I think you should get professional help with preparing a will. So a will outlines who you want your assets and personal belongings to go to on your passing. That might sound pretty simple, but no one has a crystal ball to know when they might pass away and whether they the people they nominate as beneficiaries will even succeed them. So that can be where a change comes in, a beneficiary has passed or something in their circumstances have changed, and you might want to include a number of different scenarios in your will to account for that. So not having a will won't let you do that, having a very basic will won't let you do that either. So if it's important for you to have a line of succession or multiple beneficiaries, and you want to ensure consistent treatment, you might want more than one scenario in your will, and that's where you'll need help drafting it up properly. There are different rules about handling and distribution of assets depending on their nature, and the value of assets as you see them today may not be the same after they've been sold or distributed by the estate due to things like taxes and fees. So be really careful, this is a trap where people say my super is worth X, my house is worth X, that's about equal, I'll give one to each beneficiary. It is unlikely that it will work out that way. So if it's important to you to have fair and equal treatment to your beneficiaries, you need to understand this and draft a will accordingly. So there may be something in the world that you know refers to taxes and fees, and a financial advisor and a solicitor can help you understand that. And as I said earlier, not all assets are covered by a will. So we've talked about those exceptions of things like superannuation and life insurance, but another one that people may not be aware of is that jointly held assets are likely to be outside of your will because, by their very nature, they're hold jointly by two people, one person passes away, that whole asset gets transferred to the other joint holder. Now, this might be what you want if it's a jointly held primary home and you want your partner to inherit the home, but there may be other assets that you own jointly, say you've helped your kids out, that you need to understand the ramifications in that that asset would automatically move over to the other asset or may automatically move over to the other asset holder outside of the whole will process. So that would be another reason to get a will customized to address any joint assets that you have if you are unsure of the treatment that will occur and or unsure if that suits your purposes. Um, and it you just an example there of um jointly held assets is that if you've got John and Mary owning a home and John passes away and Mary um you know receives the home, that might be okay. But what if you have John and Mary as tenants in common? And there could be a number of reasons for this. Maybe it's a second marriage, maybe it was bought before marriage, something like that. This is different to jointly held properties. So, once again, another one to get um explained to you by a solicitor. Now, as part of putting your will together, you need to appoint an executor. Now, often this is a member of the family, like power of attorneys, but and the same with power of attorneys, you can also have a paid representative do this job. You need to ensure that the person you nominate, it's a lot more complex as an executor than a potentially a power of attorney, has to be willing to take on this role and understand what it involves. Being an executor in my mind requires somebody with a cool head, a lot of patience, maybe a lot of time on their hands to do it, a proficiency or ability to understand, sometimes complex legal and financial decisions. Um, and once again, it's nothing to do with choosing the favourite child or sibling, but really working out who is the best person suited to this role. And the answer may be an independent person if you think it could result in conflict in your family. Um, because at the end of the day, the executor once again only has to act according to the will and in the estate's interest, not for their own interests, which is a concern for many people. Like power of attorneys and supernominations, the will needs to be valid. There are so many heartaches when there are technical issues with signatures, witnesses, dates, different versions that you know there's a confusion which one stands, hard copies versus electronic. There's even been cases where they're being considered valid verbal copies of a will, and even the location it's signed in because of the different um estate planning laws in different states of Australia. So if having a will is important to you, please ensure it's valid and please make sure that any changes that you make to it are also valid. The one that we see most common is that somebody has a different version of a will drafted, but they never get around to signing it due to ill health. So talk to your solicitor about that one. Because if you don't have a will at all, it can result in lengthy delays to the distribution of assets, without a doubt, higher costs, higher legal fees, or if they need if it needs to be administered by a government trustee, for example, it can place a real burden on the family members, there's conflict, it could be challenged by other family members, and it I'm sure that most people don't want to leave this sort of scenario behind them, and it can be resolved by having a valid legal will in place. Now, a couple of others that I'll talk to just briefly that could be part and parcel of discussions with a solicitor. The first one is an advanced health directive, it's a specialist document, it is really for people that have very strong views on how they want their health decisions about their health and the treatment they receive, how that plays out. So end of life can be, you know, people can have really strong opinions on it. And the thing that you have to recognise is that doctors signed a Hippocratic oath, and that Hippocratic Oath is that they should sustain life at all costs. So if you feel strongly that there might come a time that you don't want that, an advanced health directive can help you to override it by putting in place a formal legal document that says this is what I would like to happen. But obviously, you've got to do this when you are still in a state of mind that you can do it or your health is in such a way that allows you to do it because you have to go through it with a general practitioner so that they can verify that you understand the consequences of any directives that you're leaving. So, um, and then you have to provide your solicitor and power of attorney, etc., with a copy. Um, okay, the next one is testamentary trusts. They've been getting a lot of media lately because there was some um reversal of a decision about taxing of testamentary trusts in the most recent um federal budget uh federal budget. Look, these are another specialist estate planning vehicle that only come into effect after you're passing. So they're not a living trust. They're for they you set them up while you're living, but they only come in effect after you're passing. They allow a person to make very specific nominations of who and how they want their assets distributed to that a will generally can't guarantee because the will is dealt with at the time. A testamentary trust, these um instructions can continue on for a number of years, and in fact, there is no expiry date for a lot of them. Um, this could be important for you in a couple of scenarios. So, take for example, if you've got mixed families, blended families, children under the age of 18, you might have beneficiaries, beneficiaries with health issues, um, mental and physical health issues, there might be dependencies, um, you know, there might be uh uh partners involved that um of beneficiaries that you're not as keen to see wealth get distributed to. And a testamentary trust can basically outline very specific ways of paying. So, you know, you could do something like quarantining assets and only distributing the income generated from assets until a certain age or a certain condition, whatever it may be. It's beyond sort of the scope of this discussion to go into too much detail about testamentary trusts, except to say that they're there and they're worth consulting a solicitor to see if it's right for your circumstances. Retirement may give you the time to sit down and have a good chat with your family members about how things might work if you have poor health or pass away. It's the best way to clear things up and resolve conflict by being really open about it. Let them know what you're thinking, what concerns you the most. Unfortunately, it doesn't often happen in families, and I totally get why. Avoidance of that conflict might be one of them. Um, but you know, being able to explain the decisions you've made in relation to handling of assets or why you appointed certain people as power of attorneys or executors, you know, it can be a great thing to do with your family, even if it can be a difficult conversation. But I think the biggest gift you can give to your family when it comes to estate planning, and particularly if you're an executor, is to have a clean and organized filing cabinet, even if it's just a digital one. So coming into retirement, you might have the time to do this. Um, so so many issues with estate um handling come from not knowing where assets are, what you know liabilities there are, where income streams are being paid, what to do with personal belongings of the deceased person, and sometimes things are discovered months later, and in fact, not even discovered during the estate um distribution process. So, you know, being able to help your executor and your family with all of that knowledge whilst you're still living in still good health can be a great gift to them. Um, keeping all that in one place and hard copy can be a bit of a security risk if the wrong person got their hands on it. So you might want to put those details together and keep them in a safe place with your will, whether it be lodged with your solicitor or elsewhere, and then make sure your executor knows where they're located. So here is my final action plan, and this one's quite lengthy, sorry, to wrap things up. But um, like I said, retirement is such an important time to get everything in order. So, number one, consider putting a power of attorney in place, or if you've already got one, make sure you understand what it covers, when it can be used, and decide who the appropriate person is to hold that. Uh number two, check your superannuation life insurance accounts. Make sure they have valid beneficiary nominations because a reminder, they generally won't be handled under the will unless you've made arrangements for it to be handled that way. Third is to make a will, or if you have a will, check it's up to date, and this is something you should do regularly anyway. Number four is consider an advanced health directive. You can get a very simple one download it online if health decisions are important to you. Fifth one is if you've got more complex circumstances with your family or even maybe complex assets that there's some family heritage and you want to have some control over how they continue after your passing, then have a read on Testamentary Trusts and discuss with an estate planning solicitor. Sixth is schedule a time to have a family meeting about what you've done in regards to your estate planning when you've gone through that whole process. And the seventh and the last is to clean out your filing cabinet, make sure all the details of your assets, liabilities, income, and personal belongings are clearly catered for and that your executor is aware of all of those details to make life easier for them. That's it. We've come to the end of the final topic. I really hope I've given you lots to think about, but more importantly, lots of things to do. I'd encourage you to go back and play the topics again as needed, revisit the action plans, have a look at the links I've provided, the resources, play with the calculators again after listening to all of this, see if it's changed your mind, so that you can really fully utilize all of the resources that have been provided here in the retirement school. And retirement is so exciting. I hope this gives you the confidence to take that step, or if you've already taken the step, to have the confidence to know that you can get out there, start living your best life.