Nine common and critical estate planning mistakes

There are numerous significant and obvious mistakes even the most sophisticated investors make with their estate planning.

Creating an estate plan is not usually high on people’s 'to-do' list – as illustrated by the fact that one in two Australians die without a valid will.

But anyone who wants to have some control over where their assets go when they die, needs to have an estate plan. And unfortunately the DIY will kits available in news agencies are unlikely to do the job. Any small mistake can invalidate a will – for instance, there have been cases when someone signed their name in the wrong line and therefore their will was held to be invalid, despite it clearly being a document that represented their wishes.

There are now ways to get a court to uphold an informal will, but it may cost the estate many thousands of dollars to rectify.

While this mistake is an unusual example, there are other more common mistakes that can create similar problems.

They include:

1. Leaving people out of the will

Many people like to think that their family and friends won’t challenge their will, but the reality is, there are more and more cases appearing before Australian courts where wills have been challenged by friends and family. No one should assume they are exempt.

For instance, certain relatives have a right to seek redress if they feel you have not made proper provision for them.

Each state has its own specific legislation about who can challenge and in some states this list is extremely broad. For instance, people may assume that so long as two people in a relationship do not live together, there is no potential for a claim, but this may not be the case.

Likewise, in some states, even neighbours who have helped with household chores have made a claim on the estate.

It can therefore be a good idea to structure the estate plan in a way that protects assets, as far as possible, from potential claimants, and helps ensure the intended beneficiaries actually benefit.

2. Not making appropriate power of attorney arrangements

A comprehensive estate plan is more than just a will, and should include arrangements such as power of attorney which sets out who can make financial decisions on your behalf if you become incapacitated during your lifetime.

3. Including superannuation in estate plans

A very common mistake is assuming that superannuation is covered by a will. But wills only dispose of assets that are personally owned. Additional steps need to be taken to dispose of assets such as superannuation, through a valid nomination with the superannuation fund.

4. Thinking an estate is too small for an estate plan

It is rarely the case that any estate is too small to warrant a plan. For example, most people have superannuation which often includes significant life insurance. And anyone who owns their home, or has children, should have some kind of estate plan.

5. Leaving it until ‘later’

People tend to think that won’t need an estate plan until they are older, but everyone over the age of 18 should seriously consider having an estate plan. This is especially important for families with young children because their estate plan can dramatically affect the kids if the parents pass away prematurely. No one ever knows exactly when their estate plan will be needed, so it’s best to have it done sooner rather than later.

6. Being too specific

It can be a mistake to be too specific in a will – for instance, listing grandchildren by name. If more grandchildren are born and the will isn’t updated, then they will miss out on any inheritance. It’s better to keep it general by simply saying “my grandchildren who survive me”.

Another problem is when people try to list exactly what will happen to specific assets they own. The problem is they may have changed their assets by the time they pass away, or else the value of the assets may be different in the future. It’s often better to plan based on the value of the estate rather than specific assets.

7. Ignoring tax implications

There may be no death duty in Australia, but there are other taxes that can have an impact on a deceased estate.

For example:

• Tax on any capital gains when investment assets are sold to enable the estate to be distributed to the beneficiaries;

• Tax on superannuation death benefits where the benefits are not received by a dependent of the deceased member.

8. Not updating a will

A will is not a set and forget document. Family and financial circumstances change and evolve, through birth, divorce and death as well as the purchase and sale of assets. Estate planning should also change and evolve.

9. Not having an estate plan

Of course, the biggest mistake is not having an estate plan at all, and leaving it to the state to decide where your assets go. They may have a very different idea of who the beneficiaries should be.

Robert Monahan, director with HLB Estate Services, HLB Mann Judd Sydney

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