Busy, demanding and relentless – this can be said of life as we know it. Between work, family and other commitments, it is not uncommon for people to put tasks that they perceive as difficult, such as estate planning, in the ‘too hard’ basket.
Most people believe they will have plenty of time ‘later on’ to deal with their estate planning affairs. However, quite often disaster strikes when least expected and, unfortunately, some people leave it too late and fail to leave an estate plan. This creates a mess for their loved ones to clean up, often leading to family disputes, irreparable disharmony and hard-earned money being poured down the drain in court and legal fees.
The COVID-19 pandemic has wreaked havoc on our society as a whole. From being fearful of contracting the illness to panic buying toilet paper and hand sanitiser, it is clear that we’ve entered a brave new world.
The pandemic has also created many obstacles to estate planning. From aged care facilities and workplaces going into lockdown overnight to movement and gathering orders being enforced, access to a lawyer for estate planning purposes in many circumstances has become difficult. Prior to some of the various state governments enacting emergency regulations to allow the witnessing of estate planning documents by audiovisual means during the pandemic, for most estate planning documents to be valid, a person needed to meet face-to-face with a lawyer (or other prescribed witness) in order to execute their documents.
For those who were unfortunate enough to have contracted COVID-19 and were incapacitated by it, or for those who were terminally ill in hospital or in a residential aged care facility, this may not have been possible.
While, for many across Australia, restrictions are lifting and there is a light at the end of the tunnel, the pandemic has highlighted the need for proper and early estate planning. Benjamin Franklin purportedly once said: “If you fail to plan, you are planning to fail.” That notion has certainly shown a lot of merit, particularly in light of this pandemic.
What is estate planning and why is it so important?
Estate planning is the process by which a person plans and documents how they wish their estate to pass or be controlled in the event of their death and/or incapacity. Estate planning takes into account your particular circumstances, your objectives as well as the law, and involves a holistic approach that quite often requires the involvement of you, your financial advisers and legal advisers. A properly drafted and considered estate plan may provide both asset protection and taxation benefits for your beneficiaries.
The process involves the discovery of your assets and whether they form part of your estate, the identification of possible risks and the design and implementation of an estate plan that incorporates all your assets and meets your objectives.
It is extremely important that the right amount of time is spent on your estate plan, as this is the only documentation that distributes and protects all of your assets in the event of your death or incapacity. An ineffective or incomplete estate plan may leave certain assets in the wrong hands or expose them to potential creditors, or create substantial and unnecessary tax bills.
It is a myth that estate planning is only for the elderly. As long as you are over the age of 18, it is never too early to put in place an estate plan – but it can quite often be too late. Once a person has lost mental capacity, in most circumstances, they are no longer able to update or put in place an estate plan.
What does estate planning involve?
Contrary to popular belief, estate planning involves more than just a will. Although having a will is no doubt an important part of the estate planning process, it relates only to your death and is activated only after you pass away.
Given our ageing population, but also due to accidents and illnesses at younger ages (including potential complications from COVID-19), it is quite common for temporary or permanent mental incapacity to affect people in our society. It is important to be aware that a will does not assist your loved ones to manage your finances, or make medical decisions for you, if you are alive but have lost mental capacity.
There are also many assets (such as superannuation, jointly held assets, assets owned by trusts and companies or assets subject to pre-existing contractual arrangements) that may not form part of a person’s estate and, therefore, may not be distributable by a will.
Accordingly, an estate plan needs to be tailored for each individual’s circumstances – it is certainly not one size fits all. A tailored estate plan may include:
- making a will that appoints an executor and distributes your estate assets in the event of your death. A will may distribute your estate assets directly to your beneficiaries or to a testamentary trust for their benefit. A testamentary trust can take a variety of forms, including a beneficiary-controlled trust or a more protective trust, if the need arises. A testamentary trust may provide added protections for beneficiaries in relation to asset protection and taxation if suited to your circumstances
- appointing an enduring power of attorney to manage your legal and financial affairs if you are unable to, or don’t wish to, manage them yourself
- appointing an enduring guardian to manage your health, medical and lifestyle issues if you can’t make decisions for yourself
- putting in place an advanced healthcare directive in order to document what medical treatment you do or don’t wish to have if you have lost capacity
- the synchronisation of company, trust and superannuation structures in line with your overall estate planning objectives to ensure that control is passed to the appropriate person(s) to manage in the event of your incapacity or death
- the consideration of a range of critical events, for you and/or your beneficiaries, including mental and/or physical incapacity; bankruptcy or business failure; family law issues; your retirement; changes in your assets; remarriage, and the potential for disputes between beneficiaries over your estate and how these issues may affect your estate plan now and into the future
- ensuring that it is as flexible as possible to accommodate changes in the law or changed circumstances that may exist at the time of your death or incapacity.
It is also critical that your estate plan is reviewed and kept up to date either as circumstances change, or at the very least, every two to three years. It is also important to keep your estate plan stored in a safe place (most law firms can store your estate planning documents in their safe custody) and advise your executors, attorneys and guardians that they have been appointed in those roles, and the location of the original documents.
The COVID-19 pandemic has taught us all some tough lessons and made us more conscious of planning in our everyday lives. In the same way that we should plan for our retirement or even our weekly grocery shop, regular and proper estate planning should be at the forefront of our minds and the pandemic has certainly brought these issues into light. So, don’t fail to plan by planning to fail – make your estate plan a priority. Your family will thank you for it.
Adeline Schiralli is an accredited specialist in wills and estates in New South Wales and is a consulting principal in the wills and estates team of the award-winning law firm, Keypoint Law. She also holds a Masters of Law (Applied Law) and majored in wills and estates.
Is your estate planning up to date? Do you revisit and refresh your wishes as circumstances change? Do you have an advanced healthcare directive?
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DISCLAIMER: The information contained within this article is general in nature only and does not take into account personal situations. You should consider whether the information is appropriate to your situation, and where appropriate, seek professional advice from an estate planning adviser. All assumptions and examples are based on current laws (current as at June 2020) and the continuance of these laws. The author does not undertake to notify the readers of this article of changes in the law or its interpretation. All examples are for illustration purposes only and may not directly apply to your individual circumstances.