An estate will is the written document that instructs what will happen to your estate after your death. Though death is not exactly a palatable discussion yet we can’t ignore its inevitability. We also can’t neglect the fact that we would prefer to have our assets and legacy distributed the way we wish them to be.
Thus, it’s indispensable that we take proper care to plan an estate will. An improper or ill-planned estate will is likely to provoke family strife and ugly will contestation. We are morally obliged to ensure a fool-proof and fairly distributed will to our dependants and near ones.
In that light, the post below points out the 5 mistakes to steer clear of while planning your estate will.
No proper estate planning
You can’t write down a fair and just will without a systematic estate plan. A common misconception is that estate planning is only for the Richie rich- which bars many from drafting an estate plan. But that’s not true.
We all have an estate, no matter how modest or how huge. The term “estate” refers to everything that you own- home, car, other properties, bank accounts, life insurance, investments, valued personal possessions etc. Thus, we all need proceed with a proper estate planning before we sit down to write our will. The estate planning process will show you the map to write your will with due diligence.
Not updating the will
Another mistake common with estate will is lack of upgradation of the document as per the changing situations in life. Such a negligence often results to unfair distribution of estate valuables and consequently family discord. According to estate lawyers, you should make sure to check your will for updates after every 2-3 years. The major life events that call for modification in estate will are:
Sale of important assets
Remarriage or separation or divorce
Setting up family trust
New asset purchase
Getting a loan
Restructure of SMSF
Death of beneficiary
Not understanding “residue” consequences
The term “Residue” refers to the leftover of your estate after distribution of set amount of your possessions to specific individuals. Many people forget to provide clear instructions on what to do with the “Residue” on their will. Such a mistake leaves the “Residue” part in intestacy where State laws decide on its distribution.
It cannot be said with certainty that state policy of distribution will be in accordance to what you had wished to do with that part of your estate. To avoid such situations, you should be careful to chart out plans for the “Residue” on your will.
Not understanding tax consequences
Australia does not impose death tax on her citizens. But still there are 2 taxes which apply to a citizen’s asset base. Unfortunately, a lot of people forget about them while planning their estate will, leaving the heirs on the face of huge taxes.
Among the two taxes, one is CGT (Capital Gains Tax). Say, you buy a great investment asset for around $350,000 which will be worth $550,000 upon your demise. Now, whoever will inherit that asset would have to bear its in-built CGT liability. If the heir plans to sell the asset right after inheritance, s/he would have to pay nearly $50,000 as CGT. In case, the person sells the asset after 10 years when the asset would be worth $750,000- s/he would have a massive gain of around $400,000.
The other one is superannuation tax which your adult children would have to pay on taxable part of your superannuation. For example, say your superannuation amounts to $1m where $500,000 stands as “taxable component”. In that case, your adult children would have to pay $85,000 as tax.
Make sure your estate will is equipped to handle these tax affairs.
Not consulting your heirs
A lot of people plan the will without consulting their children or heirs only to leave them with assets they are unable to maintain. For example, if your kids have already settled down in another country, it’s not always a great idea to leave the old family home to them. When they are having their life in a place miles away from the property, it won’t be possible for them to take care of the house on a regular basis. Thus, always discuss your plans of estate distribution with your heirs to ensure your assets go to right hands.
Finally, make sure the will is free from ambiguities so that everybody gets a clear idea about the estate inheritance and distribution clauses.