Most of us know we need a plan in case something unexpected happens to us, but we may not know what is involved in the estate planning process. When it comes down to it, deciding who will inherit your estate is a big decision and an important part of life planning. If you are not sure what you need to do to create that plan, this article can help you get started.
Smart estate planning helps protect families with young children as well as helping your successors from overpaying on taxes. The simple fact is that without a plan in place, you won’t get to choose who gets what.
Estate planning is the process of arranging your financial and personal affairs to make sure someone you trust has the authority to act on your behalf if you lose the mental capacity to take care of these matters yourself during your lifetime, and take care of your deceased estate after you pass away..
Why is estate planning essentials?
Good estate planning essentials will ensure control over your personal and financial affairs passes to someone who will always act in your best interests, and ensures that your estate is distributed in a predictable and effective way of your choosing, limiting any undesirable tax or litigation consequences to the greatest extent possible after you pass away.
Depending on the complexity of your financial or business affairs, you may also wish to consider a Business Succession Plan to ensure control of your business passes to the right person after you pass away or choose to retire.
Wills and Trust
A will or testamentary trust should be one of the main aspects of every estate plan, even if you do not have substantial assets. Wills help to ensure that property is passed according to an individual’s wishes (if drafted according to state laws). In addition, some trusts help limit estate taxes or legal challenges. However, simply having a will and/or a trust is not enough. The wording of the document is critically important.
Enduring Power of Attorney
It’s important to draft an enduring power of attorney (EPOA) so that an agent or a person you assign will be able to act on your behalf in the event of your disability.
Without an EPOA, a court or tribunal may appoint an independent trustee company to take care of your affairs, if they find that you are not mentally capable of making your own lifestyle and/or financial decisions.
This document can give your agent the power to transfer real estate, enter financial transactions and make other legal decisions as if he or she were standing in your shoes.
When choosing your power of attorney, talk to the person you are considering. The person you choose as your attorney must be someone you trust without hesitation. They should have the experience, skills, resources, and time needed to be able to do their role.
Grants of Representation
When a person passes away, the person’s deceased estate will need to be ‘finalised’. This involves paying off any outstanding debts the person had in their name at the time that they passed away, and distributing any valuable assets they had in their sole name to their beneficiaries. In order to finalise a deceased estate, the deceased person’s ‘representative’ will first need to obtain a ‘grant of representation’ on behalf of the deceased estate, which enables that person to legally act on behalf of the deceased estate. In most cases, the representative will apply for one of the two major grants of representation;
- a grant of “probate”; or
- a grant of “letters of administration”
1. Grant of Probate
The representative will apply for a grant of probate where the deceased left a valid Will before they passed away. In this case, the representative will be the ‘executor’ who the deceased appointed under their Will to manage their deceased estate in the event they passed away. The executor will be responsible for paying off any debts from the deceased estate, and distributing all of the remaining assets according to the terms of the Will.
2. Grant of Letters of Administration
Alternatively, the representative of a deceased estate will apply for letters of administration where the deceased died without leaving a valid Will. In this case, the representative will be the next of kin of the deceased (usually the wife, de facto spouse or children), and they are called the ‘administrator’. Like the executor, the administrator is responsible for ensuring that any debts the deceased had at the time they passed are fully paid. However, because there is no Will in place, the administrator will need to distribute any of the remaining assets according to the laws of intestacy set out under Part IA of the Administration and Probate Act 1958 (Vic).
This can often be a complex procedure depending on the deceased person’s family situation at the time that they passed, and can result in their estate being distributed in a way which they would not have intended had they survived. As a result, it is extremely important that a person executes a Will before they pass away, to ensure that their deceased estate is distributed according to their wishes.
There is more to estate planning than deciding how to distribute your assets when you die. It is also about making certain your family members and other beneficiaries are provided for and have access to your assets upon your temporary or permanent incapacity.
A Will is a good place to start, but it is only the beginning. It is important to plan for all contingencies.
*** This publication is intended for general information only and by no means should be relied upon as legal advice.