Checklist to help keep your estate planning up to date

PREPARED: Making sure your estate planning is up to date will help your family cope.
PREPARED: Making sure your estate planning is up to date will help your family cope.

COVID-19 has the world in its deadly grasp, with many people confined to their homes and forecasts that many people may die in Australia before the year is out.

It's a warning to all of us to ensure that we are up to date with our estate planning.

Today I will give you a simple checklist.

But before we start, remember it is vital that relevant family members know where these important documents are kept.

It's pointless having an advance health directive, or an enduring power of attorney, if nobody can lay their hands on them.

Wills

First, check that your will is up to date and reflects your wishes.

If you are a pensioner couple, be aware that the single aged pension asset test threshold for a single pensioner homeowner has just gone up to $578,250.

Many pensioner couples make the mistake of leaving all their assets to each other, which may mean that when one dies, the survivor's assets exceed the assets test limit for a single person and the survivor loses the pension as well as their partner.

A better strategy may be to leave some money directly to the children, and keep your spouse's share just under the single threshold.

Enduring Power of Attorney

This gives another person authority to make decisions about your affairs if you are incapacitated or absent. It's particularly important if your affairs are complicated, or if you have a self-managed superannuation fund.

You don't want to be in a position where funds are needed urgently, the person who owns them has lost capacity, and no EPA is in place.

Advance Health Directive

This document sets out your instructions about your health care if you are not able to make decisions yourself. It is particularly relevant to the final stages of life, with little prospect of recovery. It is executed in consultation with your doctor, who will explain all the ramifications to you, and certify that they have done so.

Superannuation

Your superannuation is not distributed in terms of your will. The trustee of your fund has the final say on where the money goes. If you foresee challenges to your estate down the track, you can execute a Binding Death Benefit Nomination which, if properly drawn, will compel the trustee to act in accordance with your wishes. Get advice about this before you act though - if it is not necessary in your situation, it may take away the power of the trustee to distribute your superannuation in the most tax-effective manner.

Death tax

There is a tax of 15% plus Medicare levy on any taxable component of your superannuation that is left to a non-dependent. This is not normally an issue when the superannuation is passing to the spouse - who is always classed as a dependent, irrespective of their financial position - but in all other cases you'll need to plan for it.

In a high trust situation, you might plan for the attorney to withdraw the entire superannuation balance if a member appears to be close to death, and place the proceeds in the member's bank account. If the only account available is a joint bank account, have a clause to permit this inserted in the Power of Attorney document, otherwise it may not be possible.

If there is an SMSF involved there may be illiquid assets such as property syndicates, shares in unlisted companies, and managed funds that require 30 days' notice to redeem. If this is the case, talk to the trustee of your fund sooner rather than later to work out a good strategy. To the best of my knowledge, a notice to the trustee of withdrawal is all that is necessary to ensure the funds do not get hit with the death tax, even if the funds do not reach the super fund until after the member's death.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au