Your legacy The importance of Estate Planning Macquarie Adviser Services
Contents Make a will, now 01 Make a will, now 03 Who gets your Super? 04 Life insurance 05 The right structure 06 Power of attorney do you need one? 07 Questions to ask your financial adviser Roughly half of Australians die without leaving a valid will rules contained in legislation will decide how your assets are distributed The government may also decide who looks after your children if they are still minors 1. Are you going to leave your loved ones with wealth and assets or legal costs and tax bills? Without an up-to-date will, your estate may be left in limbo, instead of providing your loved ones with security after you are gone. 2 This general advice has been prepared by Macquarie Investment Management Limited (MIML) ABN 66 002 867 003 and does not take into account your objectives, financial situation or needs. Before acting on this general advice you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decisions. MIML is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and MIML s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of MIML. 1 Seniors.gov.au, http://www.seniors.gov.au/internet/seniors/publishing.nsf/content/making+a+will 1
Who is in charge? Who gets your Super? You can elect an executor someone who you entrust with looking after your estate if you pass away. They act on your behalf and help distribute your assets according to your wishes. This person may be a friend, family member or your solicitor or accountant. There is more to organising your estate than writing a will. Many people overlook the need for a will, believing they are either too young, don t have enough assets or simply have not made the time to organise a will. Others probably haven t reviewed their will for so long it may be completely inappropriate. However, when it comes to providing security and peace of mind, it is never too soon to get your estate organised. If you have assets, you need a will and if more than five years have passed or your life situation has changed, you need to review it. Having a current will help ensure that your money will not end up in the wrong hands. Families change, and while you might be comfortable with your estate being handed down to your children, if they have an extended family you need to consider the implications. For example, if your child is married and they divorce, part of your wealth may end going to your child s ex-spouse and their relatives. Your super is probably one of your largest assets, so what happens to that money is very important. But without a binding nomination from you, the trustee of your super fund not your will may decide how and to whom your super is paid. As the benefit is paid directly from your super to your dependants, it may not form part of your estate. Getting the structure of your superannuation right is equally important as it ensures your loved ones receive the largest, most tax-effective bequest possible. While the Government s recent changes to super have made it simpler, they have also made it even more important to understand how it will be paid out if you pass away. Rules which came into force in the middle of 2007 mean that a nondependant cannot receive a pension from your super fund if you die. The Government also changed the tax treatment of lump sums paid from your super to draw a distinction between your dependants and non-dependants. However there are a range of measures you can take to maximise the tax effectiveness of any super payout made after your death. You may need to speak to your accountant or financial adviser, solicitor to ensure your super or pension structure meets your needs and to maximise the benefit you can leave to others. Picasso, James Dean and Jimmy Hendrix all died without leaving a will. However Elvis Presley provided for his children via a testamentary trust. Source: Public Trustee NSW 2 3
Life insurance Depending on the size and type of cover you have, life insurance may form another significant component of your estate. The right structure for you and your beneficiaries The way you structure your investments also forms a key part of the estate planning process. For many people, prudent cover reflects the amount of assets they have relative to the debt they carry and the needs of the people for whom they care. The more assets you have the less insurance you need and vice versa. The recent super changes have made arranging insurance through your superannuation potentially more attractive. With the removal of Reasonable Benefit Limits (RBLs), insurance benefits from your super are paid to dependants tax-free. Again, the rules for non-dependants who you want to leave money to may be different so it s vital to seek advice. You need to ensure you have enough cover to protect your loved ones as well as the right insurance structure one which maximises the after-tax value of any pay-out made to your beneficiaries. Structures such as family trusts and self-managed super funds (SMSFs) can provide greater flexibility and help distribute your wealth to those you care about in the most tax-effective way. Family trusts have been an effective vehicle for passing wealth from generation to generation for some time. They allow you to give your children Family Trusts may: Minimise income and capital gains tax some of the benefits of the family assets without immediately and directly handing over control. Because they pool assets together they may also make it more efficient and cheaper to administer and manage. Here are just some of the most common reasons people establish family trusts. Minimise the chance that your will is contested Deliver an inheritance to your heirs without cost, delay or confusion Protect your estate from creditors and lawsuits Avoid family disputes and legal fees Help prevent your beneficiaries from dissipating the proceeds of your estate unwisely In the seven years to March 2007, Australian life insurers paid out more than $265 billion in claims and life insurance payouts. Source: APRA Life Insurance Trends March 2007 4 5
Power of attorney do you need one? Questions to ask your financial adviser A power of attorney can be a crucial tool for protecting your family and your wealth. A financial adviser can help you put in place the most effective estate planning solution for your needs. By appointing a power of attorney you empower a nominated representative (a friend, family member or financial specialist such as an accountant or lawyer) to make decisions on your behalf. Broadly, there are two types of power of attorney n General power of attorney a representative who can make financial decisions on your behalf. This can be particularly useful if you spend much of your time abroad. For example, if you were stuck in a foreign country and in need of funds quickly, this person can free up cash from your investments on your behalf and transfer the necessary money to you. n Enduring power of attorney similar to the above, however in this case the attorney is still empowered to make decisions on your behalf should something happen to you (eg sickness or injury) that renders you incapable of making decisions on your own. It is important to remember that granting someone power of attorney gives their decisions the same legal weight as if you made them yourself. It is important to choose that person carefully and to specify the types of decisions they can make. To ensure that you get the best advice possible, here is a short checklist of issues to run through with your adviser. n Is your will up-to-date? n Do you have an executor? n Have you arranged a Power of Attorney? n Is your estate plan easy to administer? n Should you set up a family trust? n Is a self-managed super fund right for you? n What are the cost, tax and estate planning implications of running your life insurance through super? n Are there ways to reduce the amount of tax your beneficiaries will have to pay? n Are there family issues that may affect your financial decisions and structures divorce, children from previous relationships, parents to care for? Your financial adviser can work closely with your solicitor and accountant to ensure your assets are protected for today and beyond. According to Public Trustee NSW, $46 million was transferred to the NSW Treasury over the past five years due to unclaimed estates or individuals who died intestate (without a will). 6 7
Many people haven t even got a valid will let alone a comprehensive, tax-effective estate plan which will protect and provide for their loved ones. By seeking professional advice now you can make sure that your legacy makes life easier for your loved ones. 8 9
How to contact Macquarie Adviser Services Financial Planning Association 1800 626 393 www.fpa.asn.au Macquarie Investors 1800 806 310 Financial Advisers 1800 808 508 macquarie.com.au/personal PO Box 192 Australia Square NSW 1215 BKL0235 04/10